Norms of Equality Implicit in Capitalism

Robert T. Miller

Supreme Court Economic Review, 2015, vol. 23, issue 1, 235 - 254

Abstract: Most discussions of capitalism and equality investigate how well capitalist societies conform to some normative notion of equality justified on a basis unrelated to capitalism. By contrast, this paper inquires into what norms of equality are implicit in capitalism itself, which I take to be a system of strong property rights, broad freedom of contract, and minimal economic regulation. After considering how norms of equality can be implicit in conceptual schemes not expressly including such norms, I first argue that, since the legal rules defining capitalism create rights without regard to the parties' social status, class, race, and similar factors, there is a certain norm of equality implicit in these rules. Often derided as a merely formal equality, such a norm is, in fact, of tremendous practical benefit. Assuming that the legal rules defining capitalism are justified by their being Kaldor-Hicks (KH) efficient, I next argue that the KH-justification for capitalism implies an even stronger norm of equality. This is counter-intuitive because KH-efficiency weights an individual's desires by how much he is willing to pay for (or would demand to part with) a right, and so it would seem that the KH-criterion implies a norm of inequality--that is, that it systematically favors the rich over the poor because the rich, having more money than the poor, would ceteris paribus have greater willingness-to-pay (WTP) or willingness-to-accept (WTA) a change in the allocation of rights. Conceding that this is generally correct, I argue that it is not the case as applied to the legal rules defining capitalism. That argument comes in two parts. First, I observe that if, whether a person favors or opposes a proposed change in the allocation of rights is independent of his wealth, then applying the KH-criterion favors neither the rich nor the poor. In such cases, differences in WTP or WTA based on wealth will tend to cancel out. Second, I argue that the kinds of issues dealt with by the rules defining capitalism do not divide interest groups along lines of wealth (that is, do not systematically pit the rich against the poor), and, therefore, on the set of issues to which the KH-criterion is being applied, whether a person favors or opposes the proposed reallocation is generally independent of his wealth. Hence, a justification for capitalist economic arrangements based on the KH-efficiency of those arrangements does not imply a norm of inequality in favor of the rich over the poor. Rather, because the legal rules defining capitalism promote the welfare of individuals without regard to their wealth (as well as without regard to their personal characteristics or social standing), these rules embed a robust norm of equality. Of course, it remains a separate question whether any particular capitalist society conforms to some other norm of equality different from those implicit in capitalist economic arrangements.

Date: 2015
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