A modern contractarian argument
John Rawls has proposed a justice-centered approach different in important ways from libertarianism. His approach differs first in the way he goes about determining the basic principles of justice, and second in the resulting principles themselves.
His theory is broad-ranging and not specifically focused on issues relevant to political economy (although these are given serious attention). The theory has been subject to extensive comment and criticism.[29] The following brief summary should convey a sense of the distinctive solution proposed to the problem of defining the relation between economics and politics.When economic justice means nothing more than respect for (private) property, free market outcomes and only free market outcomes are just (by definition). For a justice-centered theory to allow for other outcomes, it must judge the distribution of income and wealth on criteria that, although they may include property right, are not limited to it. The alternative to justice as respect for individual rights proposed by Rawls is justice as fairness. Rawls summarizes the basic principle of justice as follows:
All social values - liberty and opportunity, income and wealth, and the bases of selfrespect - are to be distributed equally unless an unequal distribution of any, or all, of these values is to everyone’s advantage. (1971:62)
In the following, we focus our attention on the implications of this way of thinking for the distribution of income and wealth.
According to Rawls’s principle of justice, it would be unfair to have an unequal distribution that did not benefit both those with more and those with less. This means that inequality must benefit the worst off. Rawls refers to this requirement as the “difference principle.” Because he assumes that goods satisfy wants and more goods satisfy more wants, he assumes (roughly speaking) that having more income and wealth makes us better off than having less.
The principle of justice then raises two important questions relevant to political economy: (1) How can having less make those with less better off? (2) Why would inequality that does not benefit the worst off be intrinsically unfair and therefore unjust? We begin with this second question.Our answer centers on our judgment concerning a principle we found articulated by Nozick: that all goods “come into the world already attached to people having entitlements over them.” This principle suggests that any inequalities arising in a just society actually originate outside what we can properly think of as society. If we think of society narrowly as the system of voluntary transactions by which we transfer property to and share it with others, then all that society does is recirculate the property persons bring into it. If persons have different amounts of property, it is because of their actions (for example, production) outside of society. To put this notion in the strongest terms: Society has nothing to do with the distribution of wealth. Rawls speaks as though this is not the case. The goods we make our property result from our agreement to work together in society (see, for example, Rawls, 1971:112). In some meaningful sense we owe this benefit to society. Indeed, we enter into an agreement to constitute our society precisely in order to gain such benefits. The agreement, or contract, to enter into or jointly create a society precedes (logically at least) any production and appropriation of goods. Society creates the income and wealth used by persons to satisfy their wants. Because of this priority of the contract and of the society it creates, we cannot treat wealth as something whose distribution among persons is already given. The contractualist approach makes distribution a problem that society must try to solve.
As we have seen, principles of justice are principles of the inviolability of persons and of equal citizenship. This would seem to imply equality of distribution of income and wealth.
If, for example, we all participate equally in the production of wealth, we should share equally in its consumption. Or, if we participate unequally, our shares might be in proportion to our participation. Rawls does not directly appeal to either of these two principles. Instead, he argues that inequalities are just if they benefit the worst off. Under circumstances where this is the case, he argues, equal citizenship and individual integrity are consistent with inequalities of income and wealth.This result depends on the definition of equal citizenship and on the definition of the inviolability of the person. With regard to the latter, Rawls assumes that our personal integrity is not necessarily upset when we have less wealth than others (as it might be if we had fewer votes for example). Rawls is mistaken, however, if the unequal distribution of wealth implies that those who are poorer are also deemed inferior persons. If we do not accept his premise, we cannot conclude that unequal distributions are consistent with a just society. If we do accept his premise, we can conclude that inequality need not undermine the integrity of persons.
Rawls further seeks to demonstrate the consistency of the difference principle with the principle of equal citizenship by showing how citizens would choose to govern their lives by such a principle if given the opportunity to do so. Rawls requires that we choose under conditions that assure our particular circumstances (what we have to gain or lose) will not affect our choices. In choosing, we must not know how well off we will be as a result of our choice. Rawls argues that, on this assumption, we would choose to protect our prospective positions by assuring that the worst prospective outcome is as good as it can be. Thus the difference principle would be chosen by participants in the contract. Since chosen by participants, it conforms to the principle of equal citizenship.
On this interpretation, justice allows for inequalities that benefit all (especially the worst off).
But why should inequalities benefit those who end up with less? Political economy advances an argument to support this conclusion (see Levine, 1985). Roughly speaking, the argument runs as follows.If the distribution of wealth places it disproportionately into the hands of those committed to investment rather than consumption, or if inequality otherwise stimulates a more productive use of wealth, it will lead to a growth in the overall amount of wealth. If this growth in overall amount enhances the incomes of the least as well as most wealthy, all benefit by it. Clearly, when those receiving high incomes use it primarily or exclusively for private consumption, it is difficult to argue that inequality benefits anyone but them. By contrast, investment of wealth can increase productivity, employment, and incomes. This view treats inequality as an incentive to socially productive works and as a way of financing those works.
In a way the argument makes inequality a mechanism for social savings, especially viewed from the standpoint of lower income groups. Income distribution restricts current consumption in the interests of capital formation and future consumption. Being better off is also a matter of the time frame in which we see our situations. Inequality of this type makes everyone better off eventually, not immediately. Much depends on how far off eventually is and how much better off we will be at that time.
For justice to be served, the inequalities implied in this regime must not only assure a higher overall level of income, they must be necessary to it. Otherwise the inequality does not make the worst off better off. A strong argument for the necessity of inequalities appeals to the idea of private incentives. If capital formation works best, or exclusively, when driven by the motive of private gain, then social organization can best enhance the welfare of all by rewarding the pursuit of private interests. Income inequality harnesses self-interest to the general benefit (the wellbeing of all).
If correct, an argument such as this can marshal support for a regime of private accumulation (though not necessarily pure private enterprise).[30]If correct, such arguments establish the fairness of inequality. They contribute something important to our thinking about the kind of economic system we might favor in that they tell us which kinds of economies conform to the principles of justice. This indicates an important point of contact between political economy and the theory of justice:
An economic system regulates what things are produced and by what means, who receives them and in return for which contributions, and how large a fraction of social resources is devoted to saving and to the provision of public goods. Ideally all of these matters would be arranged in ways that satisfy the two principles of justice. (Rawls, 1971:266)
Economics, presumably, can assist us in determining which kinds of inequality will likely benefit the worst off. It might also help us to discover whether those inequalities resulting from the unregulated operation of markets accord with the principles of justice and what limits on the market might make it more just.
The debate in economics over the Keynesian arguments against the selfregulating market has a relevance for a contractarian which it does not have for a libertarian. One of the important questions addressed by Keynes was that of the extent of inequality needed to stimulate growth (see Chapter 5, “Keynesian Political Economy”). Keynes’s argument that saving can be detrimental to welfare works against a part of the classical argument for inequality. The contractarian approach works well with the Keynesian argument providing an ethical framework capable of enhancing its relevance. Thus, in contrast to the libertarian world, within this contractarian regime, economics becomes relevant and the problems of political economy have potentially complex solutions.
In a broad sense, government plays an active role in relation to the market, adjusting free market outcomes to the demands of justice.
In this respect, politics enters into the functioning of the economy. Yet much is removed in principle from the political arena. Basic solutions to economic questions - how much of what goods are produced, how they are produced, and how they are distributed - derive from the logic of economic affairs and the principles of justice. These are not political solutions. We remain within a framework favoring the application and administration of justice over politics. Rawls expresses this exclusion as follows:The intuitive idea is to design the social system so that the outcome is just whatever it happens to be.... Suppose that law and government act effectively to keep markets competitive, resources fully employed, property and wealth (especially if private ownership of the means of production is allowed) widely distributed by the appropriate forms of taxation, or whatever, and to guarantee a reasonable social minimum. Assume also that there is fair equality of opportunity underwritten by education for all; and that the other equal liberties are secured. Then it would appear that the resulting distribution of income and the pattern of expectations will tend to satisfy the difference principle. In this complex of institutions, which we think of as establishing social justice in the modern state, the advantages of the better situated improve the condition of the least favored. Or when they do not, they can be adjusted to do so, for example, by setting the social minimum at the appropriate level, (pp. 85-7)
Thus there is much for government to do, but little left for politics (at this level).
The contractarian approach stresses political liberty and agreement on the basic structure of society as embodied in laws (Rawls, 1971:221-8). It allows and requires (political) deliberation in setting the legal framework but does not make the specific outcomes of the operation of the resulting institutions political outcomes. To do so would be inconsistent with the idea of justice.
This treatment of politics echoes a main theme of political economy going back to its classical origins. Neither of our justice-centered approaches seeks to bring politics into the economy.[31] Each seeks to define the appropriate institutional framework within which need satisfaction takes place. The justness of the institutions assures the justness of the outcomes of economic activities. Justice is served so long as laws consistent with its demands are respected.
The approach summarized here follows the tradition of depoliticization of the economy originating with the classical economists. Use of the terms “justice” and “rights” places us broadly within a tradition emphasizing the separation of politics from civil society (and thus economy). Civil society exists within and is established by a system of justice. It may be just or unjust; it is not political.
In a context of social interdependence, the contractarian argument takes us further than the libertarian. Yet it continues important themes of the libertarian approach. In particular, the contractarian judges economic and political arrangements by their consistency with principles that command (at least notional) agreement. We choose the principles that ground the laws by which we are governed. By interpreting the principles grounding institutions in this way, the contractarian approach incorporates the idea (albeit somewhat attenuated) that persons are antecedent to social institutions and to the system of interdependence taken as a whole. The agent to the contract must have a capacity for judgment and for identifying appropriate criteria for judgment independent of the relations with others that develop within a social order. Since institutions retain an instrumental purpose, implied in the notion of a contract, the method opens the door for those intent on applying economic reasoning to the interpretation of institutions. The justice-centered approaches so far considered go only a limited distance in conceptualizing political economy within a context of social determination of persons.