Rawls and the Market Economy

Andrew Koppelman

Spring 2022

Should we endure the astounding levels of inequality that modern capitalism has engendered? John Rawls, the most influential political philosopher of the 20th century, offers a powerful framework for considering this question. His work does not, however, provide a good guide to the implications of that framework, because his own response is ill-informed about how the U.S. economy operates today. Here, even Rawlsians need to move past Rawls.

Rawls has often been taken to be a defender of welfare-state capitalism. In fact, he believed that capitalism (with or without a welfare state) is inherently unjust. In his estimation, the only morally acceptable economic systems are democratic socialism (in which "the means of production are owned by society") or "property-owning democracy" — a market economy in which government continually intervenes to ensure widespread dispersal of capital ownership.

But Rawls built these claims on a description of contemporary American capitalism that is almost completely false, and a remarkably optimistic account of the alternatives. That is unfortunate, because his framework is one of our most useful tools for identifying and minimizing the pathologies of inequality that plague capitalist societies.

Rawls's misunderstanding of the effects of free markets has led many to reject his philosophy outright. Actually, it merely tells us that he got some facts wrong. His liberalism, applied to the world as it really is, shows that the only viable path to a prosperous society grounded in mutual respect is a vigorous free market backed up by an equally vigorous welfare state — one far more generous than the United States has now.


Social-contract theory has enduring appeal because it offers an attractive justification for authority: The state can rightfully exercise sovereignty over us if we have agreed to grant it that sovereignty. As Thomas Jefferson put it in the Declaration of Independence, "Governments are instituted among Men, deriving their just powers from the consent of the governed."

Despite its appeal, the notion that our institutions are, have been, or ought to be unanimously agreed to provokes three familiar objections. First, as David Hume pointed out, there never was any such agreement. A social contract is, by necessity, hypothetical. But how can real people be bound by a hypothetical contract?

Second, some of our obligations are inherited, such as those of family. Social-contract theory builds on Thomas Hobbes's dictum that there can be "no obligation on any man which ariseth not from some act of his own." Yet as Roger Scruton observes, any social contract presumes a determinate set of parties with mutual obligations that precede the contract. "[I]f they are in a position to decide on their common future," he explains, "it is because they already have one: because they recognize their mutual togetherness and reciprocal dependence, which makes it incumbent upon them to settle how they might be governed under a common jurisdiction in a common territory." We are born into the world not in isolation, but within communities that have claims upon us because they nurtured us into maturity, and which we have claims upon because they created us. Our social obligations cannot possibly be contractual all the way down.

And third, the disagreements among social-contract theorists such as Hobbes, John Locke, Jean-Jacques Rousseau, Immanuel Kant, and Rawls himself show that the details of any hypothetical contract are contestable — so much so that many have thought the whole notion useless.

These objections are sound only if one attempts to use social-contract theory to justify the details of rights and legislation. But the theory's value is primarily negative. It can illuminate the outer boundaries of possible legitimate governance. As Jeremy Waldron puts it, one can "show that a suggested principle of justice is unacceptable by showing that there is no remotely plausible or coherent counterfactual hypothesis under which that principle would command the universal consent of citizens." This instantly excludes the nastiest principles — slavery, hereditary aristocracy, the sort of utilitarianism that would impose enormous pain on some in order to make everyone else a little happier, and forms of libertarianism entailing that those who lack the means to purchase food have an obligation to starve. "Time and again," Waldron points out, "Locke argues (against various permutations of royalist absolutism) not that the people have not in fact consented to these arrangements, but rather that the arrangements are such that rational consent to them is unthinkable."

The pre-political attachment to the polity that Scruton points to can only exist if the terms of cooperation fulfill certain basic conditions. Even a thick web of social relations may be such as to generate no obligations. Consider the position of slaves in the antebellum United States. They were born in a society, like every other human being. That society spoke an awful lot about the virtues of liberty. Yet it was also a society to which they owed no allegiance. As Frederick Douglass observed in his 1852 speech "What to the Slave Is the Fourth of July?": "To drag a man in fetters into the grand illuminated temple of liberty, and call upon him to join you in joyous anthems, were inhuman mockery and sacrilegious irony." Even the relations into which we are born can only make legitimate demands upon us under certain conditions. The logic of a contract still applies.

If political legitimacy depends on agreement, then Hume is right: The agreement must be actual, not hypothetical. Why should we agree to it? Perhaps doing so is in our interest, or perhaps we have a moral duty to agree. Both are pretty compelling reasons. A world without legal obligations is a mighty scary place. We owe it to each other to bring a lawful world into existence.

Rawls emphasized the second of these reasons. His core idea was to make mutual respect the ultimate foundation of the social contract. He deems other bases morally irrelevant. Take, for example, his revision of Locke. Rawls never relies on anything like Locke's claim that we have obligations because we are God's creations. He also rejects Locke's idea of a pre-political entitlement to property, which one enters into the social contract to protect. Locke's conception of the social contract, in Rawls's view, allowed those with more property to exercise an unfair degree of power over those with less.

Notably, Locke's social contract may be consistent with a property qualification for voting. And in easily imaginable circumstances, it could be rational for the poor to bargain away their civil liberties when entering into a social contract. Property rights are artifacts of law. Political life did not begin as people were sitting in the state of nature with their brokerage accounts. Rawls thus relies on contractualism in a deeper way than does Locke: Our rights, per Rawls, are specified by the social contract, and so depend on what a fair social contract would entail.

In his most familiar contribution to political philosophy, Rawls argued that the basic structure of society would be fair if its terms were those that would be agreed to in a hypothetical "original position," wherein a "veil of ignorance" prevented any of the parties from knowing such morally irrelevant facts as their position in society, including whether they were rich or poor. With their information thus restricted, the parties would agree to what he calls the "difference principle": inequalities are acceptable only to the extent that "they are to be to the greatest benefit of the least advantaged members of society."

Negative hypothetical contractarianism plays an important role in Rawls's thinking. It would be irrational, he insists, for the parties to risk "outcomes that one can hardly accept." This rules out religious persecution and hereditary aristocracy. It also excludes a state of affairs in which some "experience their condition as so miserable, or their needs so unmet, that they reject society's conceptions of justice and are ready to resort to violence to improve their condition." The distribution of wealth, he argues, must not jeopardize their political equality: "Although [the poor] control fewer resources, they are doing their full share on terms recognized by all as mutually advantageous and consistent with everyone's self-respect." Even those with the least wealth are "those to whom reciprocity is owed as a matter of political justice."


Rawls, of course, wrote while living in a capitalist economy, which has two salient features: It generates enormous wealth that vastly improves the quality of nearly everyone's life, and it makes some people far richer than everyone else.

The way in which markets create wealth necessarily means that their rewards will be distributed unequally. What's more, that distribution will inevitably be morally arbitrary. Prices transmit more information than any planner could know, coordinating the productive activities of millions who need not even be aware of one another's existence. Shifts in supply and demand produce economic success and failure, often for reasons no one could have anticipated. Prices — including compensation for labor — reveal willingness to pay, not desert or need.

Claims about what's deserved, Friedrich Hayek observed, are backward-looking. Prices, on the other hand, are forward-looking: They tell people which of their efforts will be most valued by other people. John may have toiled selflessly for years to produce a product that he knew would greatly improve the lives of consumers, but if some lazy lout happens to stumble upon a better or cheaper substitute, John will be ruined. And he should be ruined. No one wants his product, and it would be wasteful to keep producing it. In a free market, Hayek concludes, rewards "will of necessity be determined partly by skill and partly by luck."

Rawls understood this arbitrariness as a reason to reject the notion that workers are entitled to no more than the marginal product of their labor. "The marginal product of labor," he observed, "depends upon supply and demand." If a person's wage collapses because of some technological innovation, the introduction of competing sources of labor, or an economic contraction, that person did not suddenly become less deserving.

Hayek, on the other hand, argued that limiting capital accumulation in the name of equality would weaken the forces of innovation that make everyone — including the poorest among us — better off. Innovators are spurred by the prospect of profit, but competition ultimately drives prices down so that most of the benefit goes to consumers. Producers only capture about 2% of the social returns from technological advances.

In terms of the two salient features noted above, America has been an outlier. Take economic growth: From 1991 to 2012, net of inflation, the U.S. economy grew by 63%, compared with France's at 35%, Germany's at 28%, and Japan's at 16%. America's real GDP also grew, from $2.3 trillion in 1950 to $19 trillion (in 2012 dollars) in 2019 — from $15,000 to $58,500 per capita.

With this exceptional growth has come exceptional inequality. In 2019, the top 1% of American adults held 38.2% of the nation's wealth. Between 1983 and 2019, the top 20% of households received 94.9% of the country's growth in wealth, with the top 1% receiving 41.6% of the total and the top 0.1% receiving 14.9%.

Growth in income is also concentrated at the top of the top. Between 2007 and 2019, income grew at a rate of 7.1% for the bottom quintile of workers while growing at 22.6% for the top quintile. As sociology professor Lane Kenworthy observes:

[A]mong the 600,000 or so that comprise the lower half of the top 1%, average pretax income roughly doubled between 1979 and 2014, from $275,000 to $500,000. Among the 12,000 households that comprise the top 0.01%, average income quadrupled during those years, from $7 million to $29 million.

Yet impoverished Americans — along with much of the world's poor — have benefitted immensely from capitalism's byproducts. From a historical standpoint, free markets played a crucial role in what University of Illinois at Chicago professor Deirdre McCloskey calls "the Great Enrichment" — a period beginning around 1800 when much of the human race became spectacularly rich after scraping by in desperate poverty for about 100,000 years. With the collapse of Soviet communism toward the end of the 20th century and the abandonment of socialism by such major powers as China and India, the proportion of the world's population living in desperate poverty plunged even further. In 1990, 35% of the world's population lived on less than $1.90 a day; by 2013, the proportion had dropped to 10.7%. For the first time in human history, more than half of the world is middle class or wealthier.

Because the poor benefit from free markets, Hayek argued there was no necessary inconsistency between his view and that of Rawls. He quoted with approval Rawls's claim that "principles of justice define the crucial constraints which institutions and joint activities must satisfy if persons engaging in them are to have no complaints about them. If these constraints are satisfied, the resulting distribution, whatever it is, may be accepted as just (or at least not unjust)." Hayek wrote that this was "more or less what I have been trying to argue."

Hayek also embraced something like Rawls's difference principle, writing in Law, Legislation, and Liberty that "we should regard as the most desirable order of society one which we would choose if we knew that our initial position in it would be decided purely by chance." He believed concern for the least advantaged was a reason to encourage free markets, which raise the standard of living of those on the bottom more so than redistribution ever could.

Given the relationship between inequality and economic growth, can there be a Rawlsian objection to the inequalities that free markets tend to generate?

The clearest such objections are developed by Rawls's Harvard colleague T. M. Scanlon in his book Why Does Inequality Matter? Scanlon, like Rawls, evaluated interpersonal relations in contractual terms based on what can be agreed to from a point of view that respects our equal moral status as rational, autonomous agents. From that standpoint, he argued that there is ample reason to support a principle of sufficiency: that everyone should have the resources for a decent life. Redistribution, Scanlon observed, may be "a way of making the poor better off, at comparatively small cost to the welfare of the rich." But this is not an objection to inequality as such. A principle of sufficiency will support capitalism, with its concomitant inequalities, if that is the most reliable way to promote sufficiency for all.

At the same time, Scanlon offers six different reasons why economic inequality as such could be in tension with mutual respect. These reasons are worth considering at length.

First, high inequality may suggest that the state is treating people with unequal concern, valuing the well-being and autonomy of some more than others. Racist decision-making is the most obvious example, but politicians' indifference to the poor could be another. Call this the problem of bias. (My labels are not Scanlon's.)

Second, it may lead to inferior status in society, which tends to engender shame and degradation. This second wrong can easily lead to the first, as the state tends to undervalue those with inferior status. Call this the problem of humiliation.

Third, it may violate equality of opportunity by giving those who are better off unfair access to the best positions. In a just society, opportunities would be available on the basis of talents rather than social circumstances. Call this the problem of bottlenecks.

Fourth, it may give the rich unacceptable control over those who have less. Lack of resources may make it possible for the rich to push the poor around, and even to violate their rights. Call this the problem of abusive power.

The fifth reason is an instance of the fourth: High inequality may undermine political fairness. Here, Scanlon cites research showing that in the United States, political outcomes not only tend to reflect the political preferences of the richest citizens, they also tend to be entirely unaffected by the preferences of the poorest when these contradict the desires of the rich. Call this the problem of oligarchy.

Sixth, and finally, high inequality may be the consequence of an unfair distribution of income and wealth. Call this the problem of unfairness.

In offering this list, Scanlon carefully distinguishes themes that are often conflated in common discourse. Barack Obama's 2013 speech declaring inequality "the defining challenge of our time" drew on all of them, moving freely from one to another without pausing to note that they are different complaints that might call for different remedies.

To Scanlon's list, one might add systemic effects. Kenworthy finds that inequality tends to reduce middle-class income growth, to heighten residential segregation, and to increase disparities in education, health, family structure, and happiness.

For our purposes, the most salient aspects of all seven of these objections are their contingency and their variability. None are necessary consequences of high inequality the way morally pernicious relationships between persons are necessary consequences of slavery. But they do occur in capitalist societies — and on a frequent basis. Perhaps capitalism always generates one or more of these pathologies, or it does so more often than the alternatives. Or perhaps they are simply inevitable aspects of the human condition.

If they are in fact inescapable, we might face a painful trade-off between the advantages of economic growth for the poorest members of a free-market society and the concomitant humiliation and abuse they endure under such a system.


The moral objections to inequality that Scanlon enumerates are implicit in Rawls's arguments against welfare-state capitalism. Even with a generous welfare state, Rawls thought, there is too much power at the top — and too much alienation and humiliation at the bottom.

For Rawls, the deepest problem afflicting capitalism is oligarchy. "[T]he invisible hand," he wrote, "guides things in the wrong direction," permitting "very large inequalities in the ownership of real property (productive assets and natural resources) so that the control of the economy and much of political life rests in few hands."

The difference principle holds that inequalities are acceptable if they are to the benefit of the least advantaged. Welfare-state capitalism cannot be justified in this way, according to Rawls, because it unfairly "permits a small class to have a near monopoly of the means of production." A job is not sufficient to make one a full member of society and guarantee self-respect if he must labor for a wage and has no control over capital.

Inequality, according to Rawls, also produces bottlenecks. "When inequalities of wealth exceed a certain limit," he argued, the institutions protecting fair equality of opportunity "are put in jeopardy." Because of differences in access to educational institutions and social networks that lead to the most lucrative jobs, some opportunities are available only to the children of the wealthy.

Yet for Rawls, a social safety net for the unemployed can produce effects that are even worse. "[G]iven the lack of background justice and inequalities in income and wealth" in a welfare state, "there may develop a discouraged and depressed underclass many of whose members are chronically dependent on welfare. This underclass feels left out and does not participate in the public political culture." This sounds like a concern about sufficiency rather than inequality, but Rawls believed that the alienation and humiliation he described were consequences of unequal control over the economy.

What, then, can be done? Limitations on inheritance are the principal means by which Rawls proposed to remedy this unequal control over the means of production. The state, he argued, should intervene "gradually and continually to correct the distribution of wealth" — for example, through "inheritance and gift taxes" and "restrictions on the rights of bequest." Inequalities will not produce oligarchy if they cannot be perpetuated from one generation to the next. This redistribution might have a depressing effect on economic growth. But for Rawls, justice "does not require continual economic growth over generations."

In sum, Rawls believed that the fundamental flaw of capitalism is the concentration of capital in the hands of the few, which he believed to be primarily the consequence of inherited wealth. Those fortunate enough to be among the few hold oligarchical political and economic power, while those who must sell their labor power for a wage face humiliation, abusive power, and limited opportunity. Those who cannot find jobs are even worse off, regardless of whether welfare payments keep them out of destitution. Capitalism may deliver growth and prosperity, but it reflects a philosophy based on consumption rather than mutual respect. No fair social contract could include such conditions.


Is Rawls's picture of the capitalist economy accurate?

In almost every detail, it is not. Consider the concentration of capital. The essential difference between the welfare-state capitalism that Rawls condemned and the "property-owning democracy" he found acceptable is that the latter ensures ownership of capital is widely shared. When "[s]ociety is not so divided that one fairly small sector controls the preponderance of productive resources...and distributive shares satisfy the principles of justice," he asserted, "many socialist criticisms of the market economy are met."

Rawls evidently took up this concern from Karl Marx, who defined social classes by their relationship to the means of production. In summarizing Marx, Rawls writes: "In order to exercise and apply their labor-power, which is the only factor of production the workers own, the workers must have access to and be able to use the means of production owned by the capitalists. Without those means, their labor is not productive." "[S]ince capitalists, as a class, own the means of production as their private property," he continues, "they can extract a certain total of surplus or unpaid labor. Workers must, as it were, pay a fee — their surplus labor — for their use of those productive instruments."

Elaborating on Rawls's case, Samuel Freeman — a University of Pennsylvania law professor and one of Rawls's most reliable expositors — argues that workers who do not own capital must "accept the market wage they are offered and the conditions of labor imposed upon them, however unpleasant and demeaning their work conditions might be." "To be in such a subservient position," he claims, "has serious consequences for workers' self-respect and their image of themselves as social equals."

This might have been plausible when Marx was writing. Much labor was carried out in factories with heavy machinery. It was hard not to perceive the power that owners of capital held over workers, along with the problems of bias, humiliation, bottlenecks, abusive power, and oligarchy these circumstances generated. Yet in today's economy, some of the most promising investments don't buy much capital equipment at all. Instead, they pay salaries for enterprises that deploy their workers' skills in novel ways.

The most productive form of capital nowadays is human capital. A corporate CEO with a $20 million salary is, by Marx's criteria, a member of the proletariat, because he sells his labor power for a wage to the owners of capital. Is his relationship to the corporation that employs him subservient and humiliating? Is the corporation abusing him? Are his opportunities limited?

The market for the best CEOs is particularly tight, which is why their pay is so astronomical. They possess a kind of natural monopoly. But the point is not confined to this narrow class of individuals. In a capitalist society, anyone with a scarce skill in a competitive labor market has leverage over his employer. It is therefore not true, as Freeman claims, that the wage relationship inherently "leaves workers powerless in their relationships with ownership and management."

There are, of course, horror stories of humiliation and abuse of power. For instance, Apple recently agreed to pay a $30 million settlement to retail workers at its California stores after it inspected their personal belongings, costing them unpaid time every day as they waited in line to be searched. In 2016, stories emerged of poultry processors like Tyson Foods and Perdue Farms prohibiting their workers from using the bathroom; some employees reportedly urinated on themselves while their supervisors mocked them. Research suggests that about half of U.S. employees are at least formally subject to drug screening without cause for suspicion. One study found that employees lose billions each year in wage theft — that is, they are compensated at either less than the legal minimum wage or less than they were initially promised.

But these problems are not inherent to the wage relationship. As in most any economy, there are good jobs and bad jobs. In 2020, the portion of Americans who told Gallup they were "completely satisfied" with their jobs was 56% — a number that had been steadily rising for years. (In 1993, it was just 35%.) When surveyed about their employment situation and asked to consider characteristics like pay, job security, opportunity for advancement, benefits, stability, and dignity, 40% classified their jobs as "good," almost 45% rated their jobs "mediocre," and 16% rated them "bad." Not surprisingly, these responses were stratified by income: Two-thirds of workers in the top 10% of income earners characterized their jobs as good, compared with less than one-third of income earners in the bottom fifth.

The bad jobs are certainly there. In 2008, one out of four Americans reported that their workplace was a "dictatorship." Elizabeth Anderson, a student of both Rawls and Scanlon, highlights these abuses. Yet she does not believe that the only solution is abandoning capitalism. She points to the experience of Germany, where worker codetermination is institutionalized, as demonstrating "that empowering workers...is both feasible and compatible with an extraordinarily high level of prosperity." Rather than endorse any specific model, she acknowledges there is "plenty of room to experiment with alternative constitutions that guarantee workers' voices, and to consider the costs and benefits of these alternatives."

What's more, the notion that self-respect depends on being a partial owner of the firm for which one works is "based on psychological claims about the bases of self-respect that seem highly speculative," as philosophy professor Kevin Vallier puts it. "Perhaps in some cases employees...would respect themselves more and receive more respect from others if they were partial owners of their workplace. But then again, maybe not."

But what about the alienating effect of a welfare state? Rawls came to this worry late. In his first book, he defined a "conception of social justice" as "providing in the first instance a standard whereby the distributive aspects of the basic structure of society are to be assessed." This pays too much attention to the distribution of things and too little to social relations, even though social relations are Rawls's deepest concern. In particular, it overlooks the destructive effects of marginalization, or exclusion from the economic life of the community.

There are indeed people whom the economic system will not use. As Iris Marion Young points out, "[e]ven if marginals were provided a comfortable material life within institutions that respected their freedom and dignity, injustices of marginality would remain in the form of uselessness, boredom, and lack of self-respect." Rawls evidently took this criticism to heart in his later work. A fair social contract would avoid the development of such an underclass.

Yet not all welfare programs produce an alienated class of dependents. The most important form of wealth redistribution is publicly funded education — including higher education — which enables the poor to build skills and human capital. Or consider the Earned Income Tax Credit (EITC), first enacted in 1975. The program supports low-income working parents by subsidizing their wages up to a maximum, phasing out with each dollar of income above that level. It is designed so that the worker benefits from each additional dollar of earned income, meaning the program does not diminish the incentive to work more hours or find a better job. In fact, it increases that incentive, since the worker is compensated more than the market would pay and thus has more reason to obtain a job in the first place — precisely what the program was designed to achieve. Since its inception, the EITC has helped pull millions of working poor families out of poverty.

Rawls's paradigm appears to be dysfunctional welfare programs, which do sometimes produce the marginalization he describes. He did not consider more effective programs like the EITC or the welfare states of the Nordic countries — which are far more munificent than those of the United States and yet manage to increase, rather than reduce, employment.

As noted above, Rawls's biggest concern was oligarchy. "[T]hose with wealth and income," he argued, "tend to dominate those with less and increasingly to control political power in their own favor." Yet here, too, the evidence is at the very least uncertain.

Without question, some wealthy people have used their money to powerfully influence American politics. The anecdotal evidence is impressive. The overall pattern, however, is not well understood. Money is obviously useful to political campaigns. But democratic politics is chaotic, and superior resources do not guarantee success. Donald Trump won the presidency in 2016 while spending only about half of what Hillary Clinton did. In 2004, the American Political Science Association Task Force on Inequality and American Democracy candidly admitted, "[w]e know little about the connections between changing economic inequality and changes in political behavior, governing institutions, and public policy." A more recent survey of the research by Kenworthy confirms that the connection between wealth inequality and political inequality remains unproven.

A more potent source of political inequality is probably the decline of private-sector labor unions — the most effective source of organized power that the working class have. Without institutions that give voice to the people at the bottom, these individuals won't be helped much by muffling those at the top.

The other oligarchy that concerned Rawls was purely economic — namely the fact that "control of the economy...rests in few hands." Yet widespread ownership of capital would probably make no difference to investment decisions. The separation of ownership from control in the modern corporation is old news. Those to whom ownership would be redistributed, if they handled it prudently (which will be true only of some of them), would do what most people who have some savings do now: Invest in their homes and managed retirement accounts while they continue to work for a wage or run a small business. When wealth inequality in the United States decreased between 1990 and 2007, it was primarily because of increases in the value of homes owned by the middle class. Redistributing capital would not affect the overall structure of control.

The biggest businesses don't have dictatorial power over what they produce. Rather, they maintain their commanding market shares through superior efficiency and responsiveness to consumer demands.Innovation provides a substantial check on monopoly power. Cell phones and internet service, to name two contemporary examples, have both steadily improved as a result of intense competition among enormous businesses. Corporate entities whose dominance once seemed permanent, such as Nokia or AOL, have learned the limits of their power. This state of affairs doesn't much resemble that of the Soviet Union, in which a small group decided what commodities the people could have. Consumers have more choices than they did a few decades ago. Producers know it.

Rawls's primary remedy for the concerns he raised — limitations on inheritance — is also based on an error of fact. Inheritance is of declining significance as a source of inequality in the United States. Today, most billionaires are self-made. Since 1982, Forbes has published an annual list of the 400 Americans with the highest net worth. In 2014, only 69 individuals and their descendants remained from 1982, and their overall wealth had grown more slowly than it would have if they had passively invested in stocks and bonds.

Most of modern America's most stratospheric incomes are not generated by ownership of physical capital. Instead, they are artifacts of supply and demand in markets where certain kinds of scarce human capital have become particularly valuable. Whatever one thinks of these circumstances, restrictions on inheritance won't change them.

Finally, there is the strange idea that a capitalist system has the wrong aims. Rawls proposed to judge each possible regime in part by its "declared aims and objectives," and, as Freeman writes, he believed welfare-state capitalism's "principle of design" is "some form of utilitarianism" that tends to "assume that the best life for individuals is one of consumption." This is a category mistake, like attributing intentions to asteroids.

Judging institutions by their aims is appropriate for those that are designed for a purpose, such as a Leninist ministry of production. But a market economy has no aims of its own. Its overall patterns of production and distribution are not the product of human design. They emerge from millions of individual transactions between people who need not have any shared aims at all — who may even despise business and capitalism yet continue to benefit from its works. As Hayek writes: "What makes agreement and peace in such a society possible is that the individuals are not required to agree on ends but only on means which are capable of serving a great variety of purposes and which each hopes will assist him in the pursuit of his own purposes."

Even when a welfare state makes allocative decisions within a capitalist society, those decisions are unlikely to reflect any coherent philosophy. Freeman claims that benefits in a welfare state are "decided by utilitarian calculations regarding the comparison of a projected social minimum with a minimum wage level that does not create disincentives to work" rather than by "focusing on the needs of the least advantaged themselves or...considerations of equality or reciprocity." In the real world, benefits are the product of continual struggle between devotees of Rawlsian reciprocity, utilitarians of the kind Freeman describes, Bismarckians who fear and despise the poor and merely want to keep them quiescent, clients who want more money, minimal-state libertarians who want to abolish all such programs, and dozens of other competing factions.

None of the market systems that exist today are the product of conscious design. Even if they were, many participants would not realize this. Support for any set of economic arrangements is inevitably based on what Rawls called an "overlapping consensus": a set of principles embraced by different people who hold divergent, and probably inconsistent, comprehensive views. In the original position, the parties will embrace whatever basic structure satisfies the difference principle. Acting as fiduciaries, they have plenty of reason to worry about the effects of the institutions they agree to. They have no reason to attribute to those institutions any aims separate from their effects.

Among the effects of a free market is economic growth. Rawls seems to have viewed such growth as a pointless exercise of production and consumption once society reaches the point where everyone's needs can be provided for. Hayek, by contrast, thought growth not simply "an accumulation of ever greater quantities of goods and equipment," but evidence of "our learning to use our resources more effectively and for new purposes." Improved goods and services might be wasted on conspicuous consumption; they might also free people's time so they finally have the leisure to read A Theory of Justice. People are various.

Of course, even if a capitalist economy is not the product of conscious design, we must still decide whether to accept it as an element of a fair social contract. The public aim of welfare-state capitalism would then be whatever reason can be given and shared for accepting it. One such reason — the reason offered here — is to generate wealth in a way that satisfies the difference principle.


In A Theory of Justice, Rawls noted the concern that "inequities in the economic and social system may soon undermine whatever political equality might have existed under fortunate historical conditions." But as late as the revised edition of Theory, he was sometimes ambivalent about the magnitude of this danger, noting that "[t]hese questions...belong to political sociology." Elsewhere in the same book, he was not so tentative. He should have been.

There are in fact capitalist states — such as Sweden, Denmark, Norway, and Finland — in which the poorest members are better off than their counterparts in any society in history, with universal health insurance, paid parental and sick leave, free or inexpensive college, and access to quality preschool and childcare. These countries have relatively low income inequality but high wealth inequality. Norway and Sweden have more billionaires per capita than we do.

As the Nordic examples illustrate, concentrated wealth does not keep a society from maintaining an expensive system of social insurance. The poor can become better off — in much of the world, they have become better off — while the wealth gap grows wider than ever. Even if America were to develop a welfare state comparable to that of the Nordic countries, extreme concentrations of wealth would still exist.

Any critique of welfare-state capitalism must reckon with the alternatives. Rawls's favored structures — democratic socialism and property-owning democracy — have never existed anywhere. Indeed, as philosophy professor Gerald Gaus observes, "[t]here has never been a political order characterized by deep respect for personal freedom that was not based on a market order with widespread private ownership in the means of production."

The sorry history of centralized economic control suggests that any system that can stamp out billionaires will have its own elite, who will in turn need enough discretionary power to do the stamping. They will almost certainly be worse than the billionaires of a free-market system, because their coercive power will not be the product of avoidable corruption (as is sometimes true of the very rich in capitalist societies), but will be baked into the system.

Jeff Bezos is one of the richest people in modern history. When he launched Amazon as an online bookstore in 1994, he warned his investors that there was a 70% chance the company would fail. It was a spectacular success, and he has continued re-investing its profits. Luck certainly played a role: He started an internet retailing company right as the market was awakening to that medium's possibilities. Yet so did skill: The company operates with remarkable efficiency, prospering despite very low profit margins. His wealth spiked during the Covid-19 pandemic, when demand for online purchases intensified. By then, Amazon had become the most efficient delivery service of all time, fulfilling many orders within 24 hours.

It is impossible to calculate the benefit to ordinary people (in technical terms, the amount of consumer surplus) the company has generated. It was also impossible to anticipate the benefits of the company's innovations. By making it unnecessary to visit retail shops during the pandemic, Amazon surely saved thousands of lives. Bezos can look you in the eye today and argue that you have good reason to consent to the economic structure that made him rich. He is, to borrow Rawls's phrase, "doing [his] full share on terms recognized by all as mutually advantageous and consistent with everyone's self-respect."

At what point in a Rawlsian property-owning democracy ought the state to have stepped in and broken up ownership of Bezos's company? At what point under a regime of liberal socialism should the company have been nationalized — which would almost certainly have brought its innovations to a halt? Political theorist John Tomasi is right: "[T]he system that most benefits the poor is the one that best encourages the production of goods, opportunities, and experiences that those citizens find valuable." It's difficult to argue that the system that enabled a firm like Amazon defies this principle.

"[F]or many people," Tomasi continues, "commercial activity in a competitive marketplace is a deeply meaningful aspect of their lives." A society that seeks to facilitate the exercise of such moral powers ought to leave wide space for such activity to occur. One need not elevate commerce to the level of a judicially protected fundamental right, as Tomasi proposes. It is enough to say — as Rawls himself did — that "justice is infringed whenever equal liberty is denied without sufficient reason."

Similarly, one need not claim that Bezos is morally entitled to his entire estate, or bless everything he has done in building it, to recognize the value he has brought to society. And of course, the argument here is no objection to a progressive income tax. Without a substantial redistributive apparatus, Bezos would not be able to say that the system that enriches him is to everyone's benefit. True, working conditions at some Amazon warehouses are reportedly oppressive. Bezos's resistance to unionization at a time when America so badly needs a re-invigorated labor movement is reprehensible. But these grievances sting in part because he could remedy them and still be one of the richest people on earth.

Bezos and his customers were not wrong to do what they have done. His fortune was the inevitable result of his company's success, and his company has made almost everyone else better off.

Consider again the problem of unfairness in the distribution of wealth. Scanlon argues that "an institution is unfair if it produces significant differences in income and wealth for which no sufficient reason can be given." If there is to be a basic structure of society that generates such differences, that structure is acceptable only if one of two conditions is met: either the disparities "could not be eliminated without infringing important personal liberties," or "they are required in order for the economic system to function in a way that benefits all."

Today's most profound sources of economic inequality can be justified on Scanlon's terms. Free markets generate enormous wealth, and this tends to benefit the poorest among us. Even if one doubts that market economies satisfy his first condition — and Americans of good faith disagree about the importance of economic liberties — they certainly satisfy the second.

An economic structure is unfair, Scanlon says, if "there are other ways of achieving the same productive advantages while distributing the benefits more equally." Thus he believes that his argument "leads naturally to something very much like Rawls's stronger principle, which requires that justifiable inequalities must not only benefit those who have less but benefit them as much as possible." Welfare-state capitalism satisfies that demand.

The most prominent leaders of the American left realize this, even though they sometimes misleadingly call themselves "socialists." Senator Bernie Sanders, for instance, admires the Nordic countries. He envisions "an economy in which you have wealth being created by the private sector, but you have a fair distribution of that wealth, and you make sure the most vulnerable people in this country are doing well." Rawls is to the left of Sanders, but here, Sanders is the better Rawlsian.


There is a powerful Rawlsian objection to certain kinds of inequalities that exist in American society. That objection is rooted in the prosperity that American capitalism has brought into existence. It directs us toward a compelling argument in favor of a robust welfare-state capitalism.

Despite America's enormous wealth, approximately 226,000 Americans are homeless and unsheltered. The discomfort of sleeping outdoors is the least of their troubles. They are often in physical danger — all the more so when they are female. There is no place where they are legally permitted to sleep, defecate, or urinate. Their situation violates the most basic requirement of the rule of law: It must be possible to follow the law's commands. It also persistently subordinates and alienates them from the rest of society, rendering them subject to the whims of the police. The abuses of inequality that Scanlon enumerates are their daily lot. No one could agree to a social contract that places human beings in such a condition.

The claims of the homeless have a crucial contractarian dimension. Once there is enough wealth to provide for urgent needs, neglect of those needs has a nasty interpersonal significance: I could help you, at fairly little cost to myself, but I choose not to.

The same could be said of the millions of Americans who are left without access to our health-care system, and indeed of many other forms of deprivation in contemporary American life. Property rights are no argument against that. Neither is the notion that our commitment to the market economy would somehow be undone by the provision of basic necessities to those who lack them.

Respectful relations between citizens based on equal dignity are possible in a society that includes a Jeff Bezos. Such relations cannot exist if basic health care is denied to those who drive Ubers, deliver groceries, care for the elderly, clean buildings, and do other indispensable work. They are not receiving a fair share of the wealth that they have helped to create. The difficulties they confront could be remedied without attacking the mechanisms that generate the wealth of our society.

We must learn to live with inequality. But we also need institutional mechanisms that keep it from producing bias, humiliation, bottlenecks, abusive power, and oligarchy. Rawlsian contractarianism shows the urgency of that undertaking, even if Rawls himself thought it pointed in a more radical direction.

The International Classification of Diseases lists the various ills the flesh is heir to. It is not a set of objections to having a mortal body; it is rather a guide to the sicknesses to which our bodies are prone. Inequality is probably a permanent part of the human condition, and it brings with it characteristic congenital, morbid symptoms. These cannot be cured — but they can be managed.

Andrew Koppelman is the John Paul Stevens Professor of Law, professor (by courtesy) of Political Science, and an affiliated faculty member in the Department of Philosophy at Northwestern University. This essay grew out of the research for his forthcoming book, Burning Down the House: How Libertarian Philosophy Was Corrupted by Delusion and Greed (St. Martin’s Press).


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