Every human being is unique. Every human being is different from any other human being. Hence, a tremendous potential for mutual complementation, and for reaping the fruits of joint production. As organised in a society of free exchange, specialised and divided labour, the constitutive uniqueness of the individual is the prime source of economic progress. Exploiting comparative advantage (whereby cooperation is mutually beneficial even if one person is in all tasks more dexterous than the other, if only there is one in which she is relatively less superior) enables humankind to enjoy gains from trade on a comprehensive and ever widening scale, and hence a substantially improved allocation of resources as well as considerably higher levels of productivity, compared to self-sufficiency or any regime of enforced uniformity (and politically enforced equality - nota bene: equality of such unnatural kind is a contradiction in terms, as it can only ever be achieved by acts of inequality in favour of some and at the expense of others. Enforcing "equality", is just a way of demonstrating that its practitioners have the advantage of coercion over others.)
Markets exist and prices form for no other reason than people being different, and hence valuing the same things differently. Taking peacefully advantage of the inequality of human beings is how free markets bring about a continuous growth of wealth. Because everyone is different, one has to have everyone participate in the market in order to find out how resources are best allocated according to the possibilities and constraints that the plans of all individuals hold for one another. The outcome is catallactic efficiency, a strong and permanent upward trend of the degree to which the plans of each and everyone are being fulfilled.
The greater the wealth thus produced, the more differentiated does the division of labour become, and hence the ability of the individual to hone her uniqueness, her special talents and propensities.
Justice is a quality that only human beings are capable of, by virtue of their conduct. Justice occurs when human beings do not engage in unjust acts, i.e. in activities that violate the rule of law. The free market is the outcome of the rule of law. An economy is the freer the more activities in it correspond with the requirements of the rule of law. As long as agents comply with the rule of law, no outcome of the market process can be said to represent an instance of injustice, no matter who holds which proportion of the overall resources. Also, the more strictly the rule of law is obeyed, the greater the degree of catallactic efficiency as defined above. A free market does not produce injustice. It is defined by the absence of unjust acts in the pursuit of economic activities.
The market system is not something that has been planned in order to achieve a particular outcome, but has evolved to bring about a way for large numbers of people, who are mostly strangers to each other, to pursue a wide variety of different and divergent values and goals peacefully and in a way that produces unprecedented wealth and catallactic efficiency.
The free market is an all-purpose machine that is end-independent (other than in the very broad sense defined in the last paragraph).
Owing to its enormous flexibility and ability to allow everyone to adapt so as to constantly improve the level of catallactic efficiency, we can never predict what share of the free market's rewards will go to any particular individual or group. In order to be able to make such predictions, we would have to damage the free market, stifle or cause a reduction of economic performance, and destroy the upward trend of catallactic efficiency.
One should not easily underestimate or dismiss the eventual advantages to expect from hard work. And one should not denigrate those, who seek or even find fulfilment in jobs of unimpressive remuneration. However, in a free market under the rule of law some people who work hard may be poorly rewarded, others who strike it lucky may make fortunes. Yet, this does not involve any injustice, nor does it undermine the quintessential superiority of the free market, i.e. the market order of a free society, compared to any other economic arrangement (feudalism, interventionism, socialism etc). In a market economy, there is an important sense in which each individual's share will be as large as it can be. Since the market order efficiently directs resources to where they will produce most value, each individual's share of the total will be delivered at the lowest possible cost.
As opposed to politicised economies, there is no systematic force that could block or reverse the growth of each individual's share however small it may be at any given time. To the contrary.
Under the specified conditions, inequality is productive; it does not entail injustice, and, fortunately, it will grow along with economic success.
I was inspired to write the above post when reading this article by Mario Rizzo: The Just Distribution of Income and Wealth.
"Markets exist and prices form for no other reason than people being different, and hence valuing the same things differently."
Well written, Georg. Thanks.
Posted by: Eric Parks | 12/26/2011 at 07:39 PM
Thanks, Eric, I value your comments highly. I just wonder what your thoughts are on my next post, where I happen to mention you in the context of a topic on which we are practically of the same opinion, and yet not in fundamental agreement. A paradox? I don't think. Just a constructive difference on an issue that, I am sure, we both appreciate in its enormous difficulty.
Posted by: Georg Thomas | 12/26/2011 at 08:28 PM
One of the things that I enjoy so much about my RSE family is that while we have quite strenuous disagreements about some things, those differences aren't really about the direction in which we should travel, but rather in the means and speed of conveyance. At some point in time, I suppose all of us have had one or more of the others around here disagree on some interpretation or goal. I'm always grateful that in our differences, we are able to discuss--sometimes moving one another, sometimes not; but always (from my perspective), helping to bring clarity.
Posted by: Laura | 12/26/2011 at 08:50 PM
Absolutely, Laura. Take an example: I hate to concede that your strictures of the way in which Ron Paul('s campaign) handles the Newsletter question is quite simply less than satisfactory, in precisely the way you have uncovered. At the same time, there is nothing I would disagree on what Eric Parks has explained in the dialogue between you on the matter.
Posted by: Georg Thomas | 12/26/2011 at 08:58 PM