The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction
• Part 1: Economics and Ethics
• Chapter 1: Are Economists Basically Immoral? *
• Chapter 2: Economics and Ethics: the Problem of Dialogue *
• Chapter 3: Income and Ethics In the Market System *
• Part 2: Economics and Theology
• Chapter 4: Can Homo Economicus Be Christian? *
• Chapter 5: Economic Scientists and Skeptical Theologians *
• Chapter 6: Christian Theological Perspectives On the Economy *
• Chapter 7: Controlling Stories: On the Mutual Influence of Religious Narratives and Economic Explanations *
• Part 3: Economics, Theology, and Justice
• Chapter 8: Justice, Natural Law, and Reformation Theology *
• Chapter 9: The Concept of Economic Justice In Religious Discussion *
• Chapter 10: The U.s. Catholic Bishops and the Pursuit of Justice *
• Part 4: Economics and History
• Chapter 12: Christian Social Thought and the Origination of the Economic Order *
• Chapter 13: Clerical Laissez-faire: a Case Study In Theological Ethics *
• Part 5: On Teaching and Learning
• Chapter 14: “the Nature of Man”: What Are We After? *
• Chapter 15: Researchers and Degree Purchasers *
• Part 6: Teaching Economics
• Chapter 16: Economics Is a Way of Thinking *
• Chapter 17: Teaching Introductory Economics *
• Chapter 18: Teaching Economics By Telling Stories *
• Chapter 19: Between Sterility and Dogmatism *
• Part 7: Economic Method
• Chapter 20: Ethics On the Road to Serfdom and Beyond *
• Chapter 21: Measures of Wealth and Assumptions of Right: an Inquiry *
• Chapter 22: The Foundations of Law and Economics: Can the Blind Lead the Blind? *
• Part 8: Policy Commentary
• Chapter 23: What Is the Responsibility of Business Under Democratic Capitalism? *
• Chapter 25: An Economic Perspective On Illegal Drugs *
• Chapter 26: Economics, Ethics, and Ecology *

CHAPTER 3

Income and Ethics in the Market System*

Among those who lecture or write about economics and ethics, the market system generally has a dubious reputation. That reputation rises and falls in response to historical events and the shifting discontents of civilization. But even in those times when ethicists are speaking well of capitalism or the market system, they usually do so with faint damns rather than genuine praise. They may grant that it works, that it gets people fed, clothed and housed. They may even be willing to concede that alternatives cannot be made to work nearly as well—at least not yet. But they will attribute this, more often than not, to something like the compatibility of capitalism with human greed, which isn’t a very inspiring recommendation from a moral point of view.

A New Look at an Old Complaint

Why is this? What is the basic moral flaw, or supposed moral flaw, in the market economy? Why have so many eminent and respectable moral thinkers looked upon capitalism and pronounced it an unfortunate necessity at best? I want to argue this evening that the condemnation rests largely upon a set of interrelated misunderstandings. But these are not, I also want to maintain, the misunderstandings of which people in the business community usually complain when they set out to defend the profit system against its critics. The misunderstandings run deeper than the customary rejoinders recognize, which is why the arguments in defense of capitalism rarely silence the critics or even slow them down.

Of course, my arguments aren’t likely to change many minds, either. When it comes to this issue, those who care are quite certain of their views, and they listen to talks such as this one more in order to grade the speaker’s position than to reexamine their own. Or else they know in advance where the speaker stands and have only come out in order to hear once again that old-time religion that so comforts the heart. They want to nod approvingly while the speaker flails the greed and materialism of the corporate sector or, on the other side, flails the ignorance and self-righteousness of those who flail the greed and materialism of the corporate sector.

This is not a complaint. The topic before us has been treated so often that everyone’s entitled to assume that nothing new is likely to be said. Nonetheless, I mean to try. The issues are extremely important both for the way in which we organize our political life and for the way in which we think about ourselves and our society. Alfred North Whitehead was profoundly correct when he contended, more than half a century ago, that a great society was a society whose principal members thought greatly of their functions. In a society dominated as ours is by the business mind, it is essential that business and economic activity be seen, at least by those who participate in it, as a worthy vocation. Is that possible? The answer will depend in large part on our moral assessment of the free-market economy.

Standards for Assessment

What should we consider when we want to assess the morality of a social system? Two criteria immediately suggest themselves: the criteria of justice and efficiency. Social systems must obviously be just or fair if they are to be ethically acceptable. But they also have to be efficient in the sense that they enable us to accomplish our purposes. Is anything more required? In particular, do we also want to take account of intentions, of motives, as we ordinarily do when we pass ethical judgment on the actions of individuals?

Motives and Consequences

We all recognize the importance of distinguishing between motives and consequences in judging people’s behavior. If I knock you over accidentally, I may be a clumsy lout, but I’m not an evil person. If I try to knock you over, however, with no provocation, I’m a malicious person even if I miss you completely. The law agrees. Attempted murder is a more serious crime, with more severe penalties, than involuntary homicide. Should this distinction also be applied to social systems?

The temptation to personify non-persons is sometimes irresistible. We curse chairs over which we stumble and we blame the weather when it upsets our plans. Of course, we also realize that these are irrational responses, signs of our own frustration rather than of any genuine intentions on the part of chairs or the weather. But what about social systems and institutions? They aren’t impersonal objects, and we know that motives do matter within social systems. Since they seem to have intentions as well as consequences, we are disposed to judge them, as we judge individual persons, by what they are aiming at as well as by what they finally achieve.

And so Adam Smith’s famous statement about the invisible hand leaves many of us feeling ambivalent at best. Even if he was correct, and there really is some kind of invisible-hand process that extracts the public interest from everyone’s pursuit of purely private gain, wouldn’t it be better if people aimed at the public good directly? Doesn’t it count against a social system, at least from an ethical standpoint, that the motives which make it work are selfish, even if it should be the case that the ultimate consequences are completely satisfactory from a moral perspective?

But this whole line of argument is fundamentally mistaken. Social systems, including the market economy, have no intentions at all, and to suppose that the motives or intentions of those who participate in the system are the motives and intentions of the system itself is a confusion of thought that can lead us seriously astray. It is an especially dangerous confusion when we start to ask about the justice of social systems. Moreover, self-interest is not the same as selfishness, and the narrow pursuit of private purposes has no necessary connection with greed, materialism, or a lack of concern for others.

Those are strong statements. Can I persuade you that they may all be true?

A Roundabout Route

The position for which I want to contend can best be understood if we approach it indirectly, by reflecting on a social system with which we’re all familiar but which doesn’t arouse the belligerent convictions that so often infuse the discussion of economic systems. It’s a social system that serves us remarkably well and that has often served me effectively when I wanted to get people reflecting on the basic nature of social systems. It’s the system we use to move about on our urban streets.

This is a social system. From Boston to Bucharest to Bozeman, people would not be able to get from home to work and back again without the system of social coordination that we casually refer to as the traffic system. Have you ever thought about how it works?

Radical Individualism

It’s a radically individualist system, to begin with. Drivers sit in their own vehicles, cut off from any communication with the other drivers who surround them, pass them, meet them, and cross their path. There are citizens-band radios, of course, but it’s my impression that drivers use them to communicate with people who aren’t close by and whom they don’t expect to encounter. I’ve seen no evidence that drivers use citizens-band radios to work out problems of potential conflict on the freeways, during the rush hour, or generally while driving in urban areas.

On the contrary, drivers formulate their plans quite independently, with no knowledge of the plans that have been or will be made by others whom they’re going to encounter. Each of us decides what time to leave for work and what route to take, and we do so without even consulting anyone else. The choice of both ends and means is made by individual drivers who characteristically don’t have the slightest inkling of what others are going to do. There is certainly no grand plan, no overarching design constructed by the Department of Commuting to make sure that you and I aren’t planning to occupy the identical road space at the same time. (The urban traffic system, in short, is not like the air traffic control system.)

Individualism, Selfishness, and Concentration

Now one could correctly say of this system, as Adam Smith said about investors in his day: Each person intends only his own gain. But is that selfish? Is it selfish of me, while driving, to focus exclusively on getting to my chosen destination as quickly as is consistent with my personal well-being? Is it selfish of me to ignore completely, not even to think about, the welfare of other drivers? If in fact I start to wonder where other drivers are going and whether their missions might be more urgent than mine, I’m beginning to daydream, and I become to that extent a greater menace not only to my own welfare but also to the welfare of other drivers in my immediate environment. An important insight emerges from this: Responsible, ethical behavior will often require an exclusive preoccupation with the technical task at hand. Driving in traffic is an example that we will all concede. So is the act of performing surgical operations; surgeons don’t operate on close friends or relatives, because the personal relationship could easily introduce considerations irrelevant to the task at hand and inimical to success.

Might this also be true of most activity in the market? We’ll return to that question.

Morality or Muddle?

Meanwhile, let’s note in the traffic situation what harm is likely to be done by people who decide to insert “morality” into their decisions. What will a driver accomplish if he refrains from advancing when the light turns green, perhaps because he’s running early and suspects that some in the cross-traffic are running late? He will almost certainly not persuade the cross-traffic to go on red; he will delay people behind him, who could well be on much more urgent missions than his own; and he will increase the likelihood of an accident by introducing substantial new uncertainties into the calculations of drivers who are observing and trying to anticipate his erratic behavior. And, of course, if everyone decided to be “unselfish” in this manner, traffic would come to a halt, as drivers regularly got out of their vehicles to discuss the relative urgency of their current goals and to insist that the welfare of others be advanced before their own.

Is this also generally true of ordinary market activity, that it would come to a halt, at enormous cost to all participants, if they were all to act consistently on the principle of advancing the welfare of the most needy or the most worthy—rather than focusing on the accomplishment of their own personal goals? To that question, too, we’ll want to return.

The Rules of the Game

I have not mentioned a very important aspect of traffic systems: They are not systems of complete anarchy. There are definite rules of the game that must be obeyed by participants if the system is to work. Drive to the right, stop for red lights, stay close to the legal speed limit, and, above all, do not touch the cars around you. We even have rules for suspending the rules: Everyone stops and yields to vehicles with sirens and flashing lights, and uniformed police officers may trump all the rules.

Clarity and Stability

In the case of a social system for moving traffic, the rules are often arbitrary. Drive to the right. Why not to the left? Stop on red. Why not on green instead? What the rules stipulate is often unimportant. What matters, in addition to the rules’ being mutually consistent, is that they be clear to all and stable over time. We have to know exactly what the rules are. Recall the panic that you must have felt at some time in your life when you found yourself heading in the wrong direction on a one-way street, or trapped in the exit lane on a freeway when you wanted to go through, because the relevant rule hadn’t become clear to you in time. This is why uniform rules are so desirable. Imagine the confusion if drivers had to keep remembering whether they were in a town that drove on the left or on the right, that required drivers to stop on red or on green, or that did or did not permit right-hand turns against a red light.

Stability over time also promotes the clarity that is so essential for traffic rules, but in addition, it reduces the costs of adjusting to changes in the rules. It doesn’t much matter that people drive on opposite sides of the road in England and France, but it does matter that it’s the left side in England and the right side in France, because those are the rules to which other rules and practices have adjusted over time. The most obvious example is the placement of the driver’s seat in cars made respectively for British and French operation. One reason England doesn’t conform on this matter to the way that most of the world drives is simply the cost of readjustment.

All this is quite obvious and non-controversial. Is it equally true—it is certainly less obvious and more controversial—with respect to economic systems in general? Does it matter greatly what the rules of the game are, as long as they are clear and stable? In addition, of course, the rules must be obeyed. That’s all true, I shall argue, in economic systems as well as in traffic systems.

Parallel Definitions

Let me now try to summarize in one sentence the social system for moving traffic with which we are all familiar. It is a system in which individuals pursue their own interests on the basis of the situation they perceive, obeying a few clear and stable rules of the game.

And let me follow that up with an equally brief definition of capitalism, or a free-market economy. It is also a social system in which individuals pursue their own interests on the basis of the situation they perceive, obeying a few clear and stable rules of the game.

Looking at the Consequences

What emerges from the traffic system? Some fatal accidents. More damaged fenders. A certain amount of anxiety. Occasional incidents of personal nastiness. But if those were the principal consequences of the system’s operation, none of us would participate. The fact is that we do play the game, and we do so voluntarily, because we expect to be better off by playing than by not playing. We venture into traffic every day, and we regularly get back home in satisfactory condition. The system works. Judged by its consequences, it’s a success. I don’t doubt that improvements will be made in the system in the future as they’re discovered and we learn how to implement them. But the system works astonishingly well as it is right now, with all its warts; and no one really knows how to design a better system for enabling people who live in dense population clusters to move about quickly, freely, safely, comfortably, and inexpensively.

Social Cooperation as Mutual Accommodation

One of the elements that make it work is the mechanism of mutual accommodation that it embodies. This mechanism becomes especially important and visible in large cities during the rush hours. Have you ever wondered—we too seldom ask such absurdly instructive questions—why it never happens that everyone using the freeway chooses to drive in the same lane? Just too unlikely, you might think. But isn’t it also most unlikely that each of the four alternative lanes on a freeway will be chosen by precisely twenty-five percent of the drivers? And yet that’s roughly what happens every day, morning and evening. A coincidence too improbable to be believed—until we notice how and why it happens.

A lane carrying fewer than one-fourth of the traffic will move more quickly; that advantage will be noticed by a few drivers traveling in adjacent lanes; they will respond by changing lanes. As they do so, they slow down the lane which they enter and accelerate the lane which they left. Through this continuous process of marginal adjustments, initiated by individual drivers responding to the perceived advantages to themselves of changing lanes, the traffic is continuously adjusted to keep each lane moving at approximately the same speed. And thereby the sum of the time traveled by all of the commuters together is minimized.

Each participant intends only his own gain, as Adam Smith put it.

In a market economy, the changing net advantages that participants perceive are communicated not by different lane speeds but primarily by changing relative prices. When suppliers and demanders aren’t accommodating each other very well, relative prices start to move. The prices that rise relative to other prices induce suppliers to offer more and demanders to ask for less. The prices that decline encourage demanders and discourage suppliers. These responses begin to close the gaps that had opened up between what producers were offering and what users were requesting, which in turn checks the relative price movements that had induced the mutually accommodating responses. Changing money prices serve both as information and as incentive in that remarkable system of social co-operation that we call a market economy.

The Limited Relevance of Productivity

It’s not enough, however, that the market system be efficient and productive. Productivity and efficiency are in fact far less important in our time and society than they were in the Europe of Adam Smith. In the eighteenth century, a decline in national wealth (or what we today call gross national product) meant actual destitution for masses of people, including the possibility of starvation. Adam Smith’s emphasis upon economic growth was a sensible and humane emphasis in his time, grounded as it was in his desire that the great majority of the people, whose labor fed, clothed, and housed the whole society, should “be themselves tolerably well fed, cloathed and lodged.”

During a recession such as we’re now experiencing, one may have to argue a bit for the position that additions to GNP aren’t very important. The issue is complicated by the fact that the costs of a recession are so unevenly distributed; most of the costs fall upon a small percentage of the total population. But even the unemployed in our society don’t face the prospect of genuine destitution. For Americans, an economic reverse entails principally the frustration of expectations. We fail to obtain what we had hoped to obtain and counted on obtaining. We make our plans in the expectation that we’ll be receiving no less than some minimum amount of income; and when those expectations aren’t fulfilled, we’re compelled to revise our plans, our life patterns, and sometimes even our conception of our own worth.

Income, Expectations, and Injustice

I am not trying to minimize these costs of economic failure. Social expectations are vitally important. We look to one another for assistance and cooperation in obtaining not just the goods that money will buy, but also the more fundamental goods (more fundamental, at least, in an affluent society) of justice and respect. When our income expectations are frustrated, most of us feel the cost primarily in the ultimate frustration of expectations with regard to our personal worth. If at the same time we believe that we were morally entitled to the fulfillment of those expectations, we will conclude that an injustice has been perpetrated against us. And we will begin to look for changes in the legal-political order that might correct the injustice we think we have suffered.

It is in this area that we find the deepest and most genuine moral dilemmas of the market system. Complaints about selfishness and materialism are altogether wide of the mark. Ethical thinkers who object to capitalism on the grounds that it is based on or even that it encourages selfishness or materialism only prove, to me at least, that they have not paid close attention to the system they claim to be criticizing.

Selfishness: A False Indictment

There is nothing peculiarly selfish about the behavior of participants in a free-market system. Whether we judge that behavior by its consequences or by its presumed intentions, there is simply no basis for a general verdict of “selfish.” The primary consequence of people’s participation in the market system is a continuous expansion of cooperative endeavor, mutual accommodation, and valued goods. That’s certainly not a selfish outcome.

But it’s the intentions, not the outcomes, against which most critics want to level the charge of selfishness. At this point I appeal to the traffic analogy. Surely no one would want to argue that drivers are selfishly motivated when they concentrate exclusively on using the means available to achieve their own personal objectives. Drivers cannot take any effective account of what others want, and any attempt to do so will make others worse off rather than better off. A narrow obsession with their own welfare, if you want to call it that, is what distinguishes the best drivers. But I think we could more accurately call it a dedication to the task at hand.

The Complexities of Motivation

There is, after all, nothing inherently selfish about trying to reach one’s destination as quickly and safely as possible. Doesn’t it matter crucially what that destination is and why one has chosen to go there? A driver could be taking children to school, going to work as a hospital volunteer, heading for an illicit rendezvous, meeting a friend to rob a bank, driving to church, or heading to a lecture on the ethics of the market system. Even that information wouldn’t be enough to tell us whether the driver’s intentions were selfish. Why is he going to that lecture? To find arguments with which to intimidate his friends? To get out of his turn at doing the dishes? To nourish his soul? To pick up some easy academic credit?

We are much too ready to impugn people’s motives, including even our own at times. Participants in the market system are human beings, with all the variety of motivation and intention that this entails. People don’t do many things for simple reasons, much less for simply selfish reasons. Insofar as the claim that capitalism relies on, rewards, or encourages selfish behavior can be given any clear meaning, I maintain that the claim is false. Whatever plausibility that claim might have—and public opinion polls show that it unfortunately has a great deal—stems largely from the fallacious identification of focused responsibility with selfishness. This confusion is compounded by the fact that responsibility is monitored in a market system primarily through the comparison of values expressed in monetary terms. And we have great difficulty breaking free from the notion that there is something inherently immoral about trying to maximize monetary magnitudes.

Monetary Values, Greed, and Morality

An almost perfect example of the confusions to which I’m referring was provided by a recent Wall Street Journal article on inner-city churches that have been selling their property to developers. The background facts are simple. Many old church buildings sit on pieces of real estate that would have enormous value in residential or business uses. The congregations are typically small, because most members have long since moved away. Moreover, the buildings, being old, are frequently expensive to maintain. The pressure on churches to sell their property in such situations is easy to understand.

But the article reports some interesting comments. A Seventh-Day Adventist congregation in Manhattan found that it couldn’t afford to maintain a building that it had purchased two years earlier from a synagogue for $400,000. When the members decided to sell, the first offer was for $800,000—twice what they had paid. As additional offers came in at progressively higher figures, the church decided to take sealed bids, in order—I quote the language of a member on the church’s sale committee—“to avoid a bidding war.” War? What an inappropriate and yet revealing choice of words!

The article gets even more interesting. A Manhattan pastor was interviewed, one who obviously doesn’t want to see old churches torn down. I quote his comment directly from the Journal article: “ ‘I don’t give a damn what others think,’ he says. ‘It’s a perversion that property is more important than beauty.’ ” An extraordinary statement! Property cannot be more important than beauty for the same reason that mountains cannot be more important than beauty: the categories aren’t comparable. What the indignant pastor must mean is that the aesthetic values to be realized from preserving old churches are more important than whatever alternative values are promoted through sale of such property. That’s a claim that can be discussed. Of course, it will be hard to discuss it with someone who doesn’t give a damn what others think because he has decided that any opposing view is based on a love of property and is therefore a perversion. Arrogance of that sort is much easier for people who have somehow convinced themselves that it’s immoral or materialistic or greedy to allocate scarce resources in accord with monetary bids. Such people very rarely ask what the alternative method of allocation might be, and so they don’t discover, as they almost surely would if they thought more carefully, that alternative systems would have far less tolerable consequences.

Who Is Being Selfish?

The Journal article quotes two other Manhattan critics of property sales by inner-city churches, neither one, incidentally, a member of the congregation whose decisions they’ve opposed. One is a woman who lives near a Christian Science church that was put up for sale and who questioned the motives of the members. “I wonder if they need the money,” she is quoted as saying, “or if it’s all just a matter of greed.” Another woman, who chairs a community organization on Manhattan’s Upper West Side, credits her organization with saving a number of churches from what she calls the “demolition squads” of condominium developers. This was done by persuading the New York City Landmarks Preservation Commission to designate the buildings as historical landmarks, sometimes over the objections of the congregations that owned them and wanted to sell. In defending this tactic she argued that many such sales are “a matter of greed.”

The confusion that permeates the whole area of economics and ethics is vividly revealed in the willingness of so many people to accept such arguments uncritically. It is not greedy for the members of a congregation to sell their church building to the highest bidder. The Seventh-Day Adventist congregation eventually sold its property for $2.4 million in cash, from which it then established a scholarship fund and made donations to other churches. On its face I would call that far less greedy than the behavior of the woman who wanted to preserve a church building because it contributed to the attractiveness of the neighborhood in which she lives. The critic, not the church members, is the one who seems to be setting her own personal welfare ahead of the welfare of others, by claiming new rights for herself even though this violates the well-established rights of many others. I’m not really sure what greed is, especially not in people other than myself, but the statements and behavior of the Manhattan church critics seem far more selfish to me than the actions of the congregations whose alleged greed they’re criticizing.

An Impersonal System

In that system of social interaction that we call a market economy, decision makers focus their attention on changing money prices. Their motives in doing so are infinitely varied and complex, and no more likely to be selfish or otherwise morally objectionable than the motives of people at a church picnic or a university lecture. The principal consequence of their behavior is ongoing mutual accommodation among millions of people who do not even know of one another’s existence, but who are nonetheless dependent upon one another for the basic necessities of life as well as the innumerable luxuries to which we have become accustomed.

We have indeed become accustomed to the near-miraculous benefits of social cooperation through the mechanism of money prices; we expect them as our due. We have, however, not learned to accept the social system without which these benefits would be impossible. We feel an inner disquiet and are morally suspicious of a social system that works so impersonally.

The Root of Our Moral Discontent?

Isn’t that, when all is said and done, the deepest root of our chronic moral dissatisfaction with capitalism or the market system? We use such words as greedy, selfish, and materialistic; we complain about the excessive importance of money or property values; but what we are really objecting to is a system that works so impersonally. We don’t want people to be fed, clothed, and lodged through the operation of an impersonal system, because persons are too important. We aren’t satisfied with a system in which the public good isn’t aimed at directly, but only emerges as an unintended consequence of much more limited objectives, because such a system seems somehow to violate our profound moral conviction that nothing is more valuable than individual persons, and that each person ought to be treated as a unique end, never as a means to some further end.

These moral convictions also underlie, I suggest, our misgivings about the justice of capitalism. Income and the other goods produced by the social system ought to be distributed among individuals, we believe, in accord with what they deserve as unique persons. The market system clearly does not satisfy that test. The benefits people receive in a market system derive from a complex interplay of mostly impersonal decisions, and the results are a varied and unpredictable product of effort and luck.

The Critical Problem of Information

The problem with this whole way of thinking, however, is that we cannot have the benefits of a market system unless we’re willing to accept its impersonal features. The remarkable productive achievements of the market system are the result of its ability to gather vast amounts of detailed, continually changing information and to disseminate it quickly to precisely those persons who want it. That won’t happen unless people respond in their actions to the signals that prices emit and those prices are in turn allowed to respond to people’s actions. The impersonality of the market system that so much disturbs us is an essential feature of that system. We cannot have the benefits of a market system if we are at the same time determined to prevent that system from operating in an impersonal manner. An economic system that successfully coordinates the efforts of millions of people will necessarily work like an urban traffic system: Individuals will pursue their own goals, obeying general rules of the game, in response to the net advantages they perceive in their immediate environment, and adjusting those net advantages in the process so that they more adequately accommodate the diverse wants and abilities of the participants.

It’s important to notice that what I have just asserted about large economic systems is true of all large economic systems, not just of so-called capitalist systems. Socialist systems don’t escape this limitation. The abolition of private property doesn’t abolish the information problems that all economic systems must solve if they are to be efficient and productive. It only changes the rules of the game. Moreover, it changes them so that they become less clear and certain and less stable over time.

Justice in Large Societies

The consequences, as so much twentieth-century history now demonstrates, include low levels of productivity and notorious inefficiencies. But that’s not all. Clear and stable rules are also a prerequisite of fairness in any large society. What many advocates of economic justice fail to recognize is that, in a large society, the one indispensable condition for justice is the existence and enforcement of impartial rules. How large is large? No precise numerical answer can be given. Justice requires impartial rules in any society so large that tasks and benefits cannot be fairly allocated on the basis of the principle: from each according to ability, to each according to need and merit. That’s the principle we use in families. It works effectively and fairly in families, for the most part, because the people involved are few enough and close enough to care for each other in a personal way. In societies significantly larger than families, the members simply cannot know enough to assign tasks and benefits on the basis of personal circumstances and still do it fairly.

The problem is knowledge; it is not simply goodwill. Goodwill by itself will not enable us to determine one another’s abilities, needs, or merit in a society as large as two hundred people, much less one of two hundred million people. Any attempt to do so is bound to produce arbitrary and hence unfair results.

The Spurious Conflict Between Efficiency and Justice

Justice and efficiency, it turns out, are not conflicting objectives between which we must choose. They are complementary. If we have failed to see that justice and efficiency in a large society both presuppose clear and stable rules of the game, it is probably because we have not yet seen the fundamental impossibility of securing justice in a large society in any other way. I am not making any sort of case for laissez-faire or even for a smaller government role in the economic system. I am rather insisting that to whatever extent government controls the use of resources and the distribution of income, it ought to do so by promulgating and enforcing clear and stable rules. That leaves a great deal of room for government assistance to less fortunate members of society. What it excludes are vague and uncertain rules, which permit and encourage bureaucratic self-seeking, tyranny, and other political injustices, while making it more difficult for members of the society to plan effectively. I am far from arguing that government has no place in the economy. I am rather insisting that, on economic and ethical grounds, in the interest of both justice and efficiency, government must establish clear and stable laws.

The Pursuit of Community

Our persistent yearning for a more personal society does not have to be denied or suppressed. But it must find its expression where it is appropriate, where people can actually relate to one another on the basis of the “family principle.” That can’t possibly be at the level of national politics or even state politics; the scale is far too large. The illusion that government can extract just outcomes from the economic system, outcomes consistent with our notions of what individuals deserve as unique persons, prevents us from insisting that government promote justice in the one way it can do so: by clarifying, stabilizing, and enforcing impartial laws. Our vain pursuit of a chimerical justice produces not only inefficiency but also more injustice. On top of that, our obsession with government solutions to social problems prevents us from finding and acting upon our genuine opportunities to nurture personal relationships and community.

Conclusion

Let me summarize briefly. Most ethical criticism of the market system reflects confusion and misunderstanding. Moreover, it does positive harm, because it fosters political interventions that produce not only inefficiency but also injustice. It is the injustice that troubles me most. A nation without justice, St. Augustine observed, is no more than a robber band. The productivity of our economic system has given us a lot of room to practice inefficiency and folly. We have far less room to practice injustice. The tragic irony is that so many of the “best people” among us are today undermining the foundations of social justice in the name of ethics.

PART 2

Economics and Theology

[* ] Unpublished typescript of lecture at Montana State University in Bozeman, Montana, 20 October 1982. Reprinted by permission of Mrs. Juliana Heyne.