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The Justice of Economic Efficiency

Mises Daily: Thursday, January 05, 2012 by

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[Austrian Economics Newsletter (1988)]

The central problem of political economy is how to organize society so as to promote the production of wealth. The central problem of political philosophy is how to arrange society so as to make it a just social order.

The first question regards matters of efficiency: What means are appropriate for achieving a specific result, in this case, wealth?

The second question falls outside the realm of the so-called positive sciences. It asks whether or not the goal political economy assumes to be given can be justified as a goal, and whether or not, then, the means which political economy recommends can be regarded as efficient means for just ends.

In the following I present an a priori justification for the thesis that those means recommended by political economy are indeed efficient means for just ends.

I begin by describing the means recommended by political economy and explain the systematic reasons the production of wealth attained by adopting them is greater than that produced by choosing any other means. Since my main task is to demonstrate the justice of these means of producing wealth, my description and explanation of economic efficiency will be brief.

Political economy begins with the recognition of scarcity. It is only because we do not live in the Garden of Eden that we are concerned about the problem of economic efficiency. According to political economy, the most efficient means of alleviating, if not overcoming, scarcity is the institution of private property. The rules underlying this institution have been correctly identified for the most part by John Locke. They are as follows:

Every person owns his own body as well as all scarce goods which he puts to use with the help of his body before anyone else does. This ownership implies the right to employ these scarce goods however one sees fit so long as in so doing one does not aggress against anyone else's property, i.e., so long as one does not uninvitedly change the physical integrity of another's property or delimit another's control over it without his consent. In particular, once a good has first been appropriated or homesteaded by mixing one's labor with it (Locke's phrase) then ownership in it can only be acquired by means of a contractual transfer of property title from a previous to a later owner.

The reason this institution leads to the greatest possible production of wealth is straightforward. Any deviation from this set of rules implies, by definition, a redistribution of property titles (and hence of income) away from user-producers and contractors of goods and onto non-user-producers and noncontractors. As a consequence, any such deviation implies that there will be relatively less original appropriation of resources whose scarcity is realized, there will be less production of new goods, less maintenance of existing goods, and less mutually beneficial contracting and trading. This naturally implies a lower standard of living in terms of exchangeable goods and services.

Further, the provision that only the first user (not a later one) of a good acquires ownership assures that productive efforts will be as high as possible at all times. Further, the provision that only the physical integrity of property (not property values) be protected guarantees that every owner will undertake the greatest possible value-productive efforts, i.e., efforts to promote favorable changes in property values and to prevent or counter any unfavorable changes in property values (as they might result from another person's actions regarding his property). Thus, any deviation from these rules also implies reduced levels of value productive efforts at all times.

Now on to my main task of demonstrating that the institution of private property as just characterized is just — in fact, that only this institution is just and that any deviation from it is not only economically inefficient but unethical as well.

First, however, let me clarify an essential similarity between the problem facing political economy and that facing political philosophy — a similarity that political philosophers in their widespread ignorance of economics generally overlook only to wind up in endless ad hoceries. The recognition of scarcity is not only the starting point for political economy; it is the starting point of political philosophy as well. Obviously, if there were a superabundance of goods, no economic problem whatsoever would exist. With a superabundance of goods such that my present use of them would neither reduce my own future supply nor the present or future supply of them for any other person, ethical problems of right or wrong, just or unjust would not emerge either since no conflict over the use of such goods could possibly arise. Only insofar as goods are scarce are economics and ethics required.

In the same way, just as the answer to the problem of political economy must be formulated in terms of rules constraining the possible uses of resources qua scarce resources, political philosophy too must answer in terms of property rights. In order to avoid inescapable conflicts, it must formulate a set of rules assigning rights of exclusive control over scarce goods. (Note that even in the Garden of Eden, a person's body, the space occupied by that body, and time would still be scarce and to that extent political economy and philosophy would still have a task, however limited, to fulfill.)

Now to the actual proof of the thesis that out of the infinitely conceivable ways of assigning rights of exclusive ownership to people, only the previously described rules of private property are actually justifiable. I will present my argument in a step-by-step fashion.

First, while scarcity is a necessary condition for the emergence of the problem of political philosophy, it is not sufficient. For obviously we could have conflicts regarding the use of scarce resources with, let us say, an elephant or a mosquito, yet we would not consider it possible to resolve these conflicts by means of proposing property norms. In such cases, the avoidance of possible conflicts is merely a technological, not an ethical, problem. For it to become an ethical problem, it is also necessary that the conflicting actors be capable, in principle, of argumentation. In fact, this is undeniably so because we are also engaged in argumentation here. Denying that political philosophy presupposes argumentation is contradictory, as the very denial would itself be an argument.

Only with argumentation does the idea of validity and truth emerge and by no means only the idea of truth in ethical matters but of truth in general. Only within argumentation are truth claims of any kind made, and it is only in the course of argumentation that truth claims are decided. This proposition, it turns out, is itself undeniably true: one cannot argue that one cannot argue, and one cannot dispute knowing what it means to make a truth claim without implicitly claiming at least the very negation of this proposition to be true. My very first step in the following chain of reasoning, then, has been called "the a priori of argumentation" by such philosophers as Jürgen Habermas and K.O. Apel.[1]

In the same way as it is undeniably true that ethics requires argumentation, it is also undeniably true that any argument requires an arguing person. Arguing does not consist of free-floating propositions. It is an activity. If aside from whatever is said in its course, however, argumentation is also a practical affair and if argumentation is the presupposition of truth-claiming and possibly true propositions, then it follows that intersubjectively meaningful norms must exist — namely those which make an action argumentation — which must have a special cognitive status in that they are the practical preconditions of truth. Once more, this is true a priori, so that anyone, such as an empiricist-positivist-emotivist who denied the possibility of a rational ethics and who declared the acceptance or rejection of norms an arbitrary affair would invariably get caught in a practical contradiction. For contrary to what he would say, he would in fact have to presuppose the norms which underlie any argumentation whatsoever as valid simply in order to say anything at all.

With this step I lose, once and for all, the company of philosophers like Habermas and Apel. [2] Yet, as will become clear immediately, it is directly implied in the previous step. That Habermas and Apel are unable to take this step is, I submit, due to the fact that they, too, suffer, as do many other philosophers, from a complete ignorance of economics, and a corresponding blindness towards the fact of scarcity. The step is simply this: To recognize that argumentation is a form of action and does not consist of free-floating sounds implies the recognition of the fact that all argumentation requires that a person have exclusive control over the scarce resource of his body. As long as there is argumentation, there is mutual recognition of each other's property right in his own body. It is this recognition of each other's exclusive control over one's own body, presupposed by all argumentation, which explains the unique feature of verbal communication that while one may disagree about what has been said, it is still possible to agree at least on the fact that there is such disagreement.

Again, such a property right in one's own body must be said to be justified a priori, for anyone who would try to justify any norm whatsoever would already have to presuppose the exclusive right to control over his body as a valid norm simply in order to say, "I propose such and such." Further, any person who tried to dispute the property right in his body would become caught up in a practical contradiction since arguing in this way would already imply acceptance of the very norm which he was disputing. He would not even open his mouth if he were right.

The final argument extends the idea of private property as justified, and justified a priori, from the very prototype of a scarce good (a person's body) to other goods. It consists of two parts. I first demonstrate that argumentation, and argumentative justification of anything, presupposes not only the right to exclusively control one's body but the right to control other scarce goods as well, for if no one had the right to control anything except his own body, then we would all cease to exist and the problem of justifying norms — as well as all other human problems — simply would not exist. We do not live on air alone; hence, simply by virtue of the fact of being alive, property rights to other things must be presupposed to be valid, too. No one who is alive could argue otherwise.

The second part of the argument demonstrates that only the Lockean idea of establishing property claims through homesteading is a just principle of property acquisition. The proof employs a simple argumentum e contrario: If a person did not acquire the right of exclusive control over other, nature-given goods by his own work, that is, if other people, who had not previously used such goods, had the right to dispute the homesteader's ownership claim, then this would only be possible if one would acquire property titles not through labor, i.e., by establishing some objective link between a particular person and a particular scarce resource, but simply by means of verbal declaration.

This solution — apart from the obvious fact that it would not even qualify as a solution in a purely technical sense in that it would not provide a basis for deciding between rivaling declarative claims — is incompatible with the already justified ownership of a person over his body. For if one could indeed appropriate property by decree, this would imply that it would also be possible for one to simply declare another person's body to be one's own. However, as we have seen, to say that property is acquired not through homesteading action but through declaration involves a practical contradiction: nobody can say and declare anything, unless his right to use his body is already assumed to be valid simply because of the very fact that regardless of what he says, it is he, and nobody else, who has homesteaded it as his instrument of saying anything.

With this, my a priori justification of the institution of private property is essentially complete. Only two supplementary arguments may be needed in order to point out why and where all other ethical proposals (let me call them socialist) are argumentatively indefensible.

According to the private-property ethics, scarce resources that are under the exclusive control of their owners are defined in physical terms, and, mutatis mutandis, aggression, is defined as an invasion of the physical integrity of another person's property. As indicated, the economic effect of this provision is that of maximizing value-productive efforts. A popular deviation from this is the idea of defining aggression as an invasion of the value or psychic integrity of another person's property instead. This idea underlies John Rawls's "difference principle" that all inequalities have to be expected to be to everyone's advantage regardless of how such inequalities have come about,[3] Robert Nozick's claim that a "dominant protection agency" has the right to outlaw competitors regardless of their actual actions, and his related claim that "nonproductive exchanges" in which one party would be better off if the other one did not exist may be outlawed, again regardless of whether or not such exchange involved any physical aggression.[4]

Such proposals are absurd as well as indefensible. While every person can have control over whether or not his actions cause the physical integrity of something to change, control over whether or not one's actions affect the value of someone's property to change rests with other people and their evaluations. One would have to interrogate and come to an agreement with the entire world population to make sure that one's planned actions would not change another person's evaluations regarding his property. Everyone would be long dead before this could ever be accomplished.

Moreover, the idea that property value should be protected is argumentatively indefensible, for even in order to argue, it must be presupposed that actions must be allowed prior to any actual agreement because if they were not, one could not even argue so. Yet if one can, then this is only possible because of objective borders of property, i.e., borders which every person can recognize as such on his own, without having to agree first with anyone else with respect to one's system of values and evaluations. Rawls and Nozick could not even open their mouths if it were otherwise. The very fact, then, that they do open them proves what they say is wrong.

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The second popular deviation, equally absurd and indefensible, is this: Instead of recognizing the vital importance of the prior-later distinction in deciding between conflicting property claims — as the private-property ethics does, thereby assuring value-productive efforts to be as high as possible at all times — the claim is made, in essence, that priority is irrelevant and that latecomers have rights to ownership just as first-comers do. Again, with his belief in the rights of future generations, just savings rates and such things, Rawls may be cited as an example. However, if latecomers indeed had legitimate ownership claims to things, then literally no one would be allowed to do anything with anything as one would have to have all of the latecomers' consent prior to ever doing what one wanted to do.

Neither we, nor our forefathers, nor our progeny could, do, or will survive if one followed this rule. However, in order for any person — past, present, or future — to argue anything it must evidently be possible to survive then and now. Moreover, in order to do just this — and even people behind a Rawlsian "veil of ignorance" would have to be able to survive — property rights cannot be conceived of as being timeless and nonspecific regarding the number of people concerned.

Rather, they must necessarily be thought of as originating through acting at specific points in time for specific acting individuals. Otherwise, it would be impossible for anyone to first say anything at a definite point in time and for someone else to be able to reply. Simply saying, then, that the prior-later distinction can be ignored implies a contradiction, as one's being able to say so must presuppose one's existence as an independent decision-making unit at a given point in time.

Hence, I conclude that any socialist ethic is a complete failure. Only the institution of private property, which also assures the greatest possible production of wealth, can be argumentatively justified, because it is the very precondition of argumentation.

Notes

[1] K.O. Apel, "Das Apriori der Kommunikationsgemeinschaft und die Grundlagen der Ethik," in idem, Transformation der Philosophie (Frankfurt/M., 1973), vol. II; Jürgen Habermas, Moralbewusstsein und kommunikatives Handeln (Frankfurt/M. 1983).

[2] Apel and Habermas are essentially silent on the all-decisive question of what ethical prescription actually follows from the recognition of the "a priori of argumentation." However, there are remarks indicating that they both seem to believe some sort of participatory social democracy is implied in this a priori. The following explains why nothing could be further from the truth.

[3] John Rawls, A Theory of Justice (Cambridge, Mass.: Harvard University Press, 1971), p. 60, pp. 75f., 83.

[4] Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), pp. 55f., 83–86.