by Martin Rhonheimer •
Hayek’s dismissal of the concept of ‘social justice’ is well-known. While we can basically agree with Hayek’s critique, we should not entirely reject this concept, although it is often used in a vague and emotional way – ‘social justice talk’. Drawing on the tradition of classical liberalism and Catholic social teaching, the true meaning of social justice applies to the basic legal and institutional framework of a society rather than the distributional outcomes of market processes. Therefore, while confirming Hayek’s main points, I will try to show that the concept of ‘social justice’ need not be entirely rejected or even relegated to the category of ‘nonsense’, as Hayek claims. [*]
This text corresponds to the accepted version of the following article: Martin Rhonheimer, “The True Meaning of ‘Social Justice’: A Catholic View of Hayek,” published in: Economic Affairs, Volume 35, Issue 1 (February 2015), pp. 35–51. The PDF of the published version can be purchased here: http://onlinelibrary.wiley.com/doi/10.1111/ecaf.12103/full – Economic Affairs is published jointly by the Institute of Economic Affairs (iea), London and the University of Buckingham.
1. Introduction: the problem of ‘social justice talk’
‘Social justice’ has become a term which is in everybody’s mouth but is hardly ever defined. The term appeals to widely shared feelings and intuitions concerning justice, and therefore seems to be self-explanatory. Such feelings mostly refer to different kinds of inequality which are perceived as unjust.
These feelings and intuitions are not just vain or lacking any sound basis. Nor do I want simply to identify them with sentiments of envy, even though in many cases envy certainly plays a role. However, I think that the ubiquity of ‘social justice talk’ originates in a moral intuition which should be taken seriously. The popularity of the term seems to lie in the fact that social and economic inequalities are no longer accepted as fate, or God-given, or imposed by nature. In a dynamic world of unprecedented economic growth driven by human endeavour, the inequalities generated are also seen as caused by human beings.
The sound moral intuitions underlying claims for ‘social justice’ are, however, mostly misguided by ignorance of the real causes of wealth and economic growth as well as of basic facts of economics such as the scarcity of resources and the role of capital accumulation, especially its decisive importance for technological innovation and consequent rise in productivity and general prosperity. These moral intuitions are, moreover, misguided by a misapprehension of the limited reach of human knowledge and of the nature and importance of markets in overcoming these limitations, as well as by myths concerning economic history, especially a sometimes far-reaching misreading of the history of capitalism.
‘Social justice’ is commonly conceived to be justice of distribution, or, as it is traditionally called, distributive justice. According to tradition, distributive justice is to be distinguished from ‘commutative justice’, the justice of relations between individual human beings, such as in buying and selling and every kind of contract. Distributive justice is the justice in dealings of superior communities or authorities, namely the state, with single persons posited under their authority or command. Distributive justice refers to the just distribution of burdens (e.g. taxation) and of benefits (not only material but also immaterial, e.g. honours).
One of the fiercest and most influential critics of the concept of social justice has been Friedrich von Hayek. Hayek himself follows the common usage of understanding ‘social justice’ simply as ‘distributive justice’. This narrowing of the perspective prevents Hayek from taking into account other possible meanings of ‘social justice’ which, as we will see, are fully compatible with his critique of social justice as distributive justice and with his views on the market.
In the following I first set out Hayek’s critique of ‘social justice’, focusing on the merits of this critique but also its limitations. These limitations lead us, in a second step, to a set of questions ignored by Hayek and other libertarian critics of ‘social justice’ and thus to a widening of the perspective. Third, I elaborate a higher-order concept of ‘social justice’ that encapsulates our most authentic moral intuitions about justice and is compatible with both anthropological principles of Catholic social doctrine and Hayek’s position. Finally, I examine how such an outlook can be integrated into Catholic social doctrine. This involves discussing some misunderstandings amongst Catholics about the role of markets; this discussion will confirm Hayek’s main points, while integrating them into a wider perspective.
2. Hayek’s criticism of ‘social justice’
For Hayek it is crucial to understand societies, markets and the legal systems in which markets are embedded as examples of ‘spontaneous order’. This does not mean a naturally evolving order, that is, one free from intervention by human decisions or ‘steering’ by politicians, lawyers and legislators. According to Hayek, spontaneous orders are to be distinguished from orders which are designed intentionally for a determinate purpose, something which is typical for organisations. Societies, markets and legal systems which contain a great multitude of individuals with diverging preferences and therefore pursuing different ends are not established like organisations, but arise as the result of evolutionary processes which are not intentionally designed for a determined end. The rules and institutional principles shaping such spontaneous orders can assure cooperation between individuals pursuing different ends, avoiding the subordination of the legitimate freedom of individuals to the dominant preferences of others. The only spontaneous orders compatible with freedom are, therefore, those governed by legal rules which are open to an indeterminate range of outcomes and not intentionally designed to bring about a determined end or state of affairs.
Free market economies develop as spontaneous orders. They are the proper economic order of a free society. Their distributional outcomes are not organised, planned or otherwise guided by any intentional design. Therefore, and this is Hayek’s main point in his The Mirage of Social Justice, the outcomes of markets can be called neither ‘just’ nor ‘unjust’: ‘only human conduct can be called just or unjust’ (Hayek 1976, p. 31). Hayek affirms: ‘In a free society in which the position of the different individuals and groups is not the result of anybody’s design … the differences in reward simply cannot meaningfully be described as just or unjust’ (1976, p. 70). The market does not act with a single intention or purpose; it is not an actor at all. Therefore, the moral specification of ‘just’ and ‘unjust’ cannot be applied to its distributional results.
While admitting that ‘We are of course not wrong when we perceive that the effects on the different individuals and groups of the economic processes of a free society are not distributed according to some recognizable principle of justice’, Hayek argues that we cannot conclude ‘that they are unjust and that someone is responsible and to be blamed for this’ (1976, p. 83). We cannot treat society or the market as a single, intentional agent responsible for the outcome of its actions. Provided we abhor the command economy of socialism and a totalitarian political system, and understand that a market economy is ‘a system in which each is allowed to use his knowledge for his own purposes’, that is, the economic order of a free society, then ‘the concept of “social justice” is necessarily empty and meaningless, because in it nobody’s will can determine the relative incomes of the different people, or prevent that they be partly dependent on accident’ (1976, p. 69).
In addition to the clear insight into the nature of the market economy and the conditions for a free society that is at the root of Hayek’s view, his conception of the economic life, of cooperation and society, is deeply humanistic; it is based on the primacy of the individual person and his or her liberty and self-responsibility. Hayek is far from indifferent towards persons who are not capable of taking part in what he calls the ‘catallactic game’ of the market. Such persons must be assisted or taken care of by the entire community, he says, if necessary by an ‘assured minimum income, or a floor below which nobody need to descend’; such an insurance against extreme misfortune ‘may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organized community, those who cannot help themselves’ (1976, p. 87).
However, Hayek makes another point which, in my opinion, is crucial in the present context, although he does not develop it further. He admits that ‘If we apply the terms [just or unjust] to a state of affairs, they have meaning only in so far as we hold someone responsible for bringing it about or allowing it to come about’ (1976, p. 31; emphasis added). This statement has far-reaching consequences. Hayek repeats the point two pages later: ‘Since only situations which have been created by human will can be called just or unjust, the particulars of a spontaneous order cannot be just or unjust: if it is not the intended or foreseen result of somebody’s action … this cannot be called just or unjust’ (1976, p. 33; emphasis added).
Markets are certainly spontaneous orders, not only in the way they have developed over time but also in the way they work at any given time. However, even if the outcomes of their catallactic processes are not intended by any single human actor, they always produce their outcomes in the context of a given legal and institutional framework for whose continuing existence determinate persons actually are responsible. Determinate legal and institutional arrangements as well as a particular property distribution may very well lead the spontaneous order of the market to produce distributional results – for example, inequalities or disadvantage and discrimination against particular groups of people – which under different legal and institutional preconditions would not have been produced this way. For example, if a legal order discriminates against determinate social, ethnic or religious groups, depriving them from the possibility of exercising those jobs which are the most rewarding in terms of income and social prestige and/or impeding them from acquiring property rights, then the social and economic distributional pattern resulting from the spontaneous order of the market operating under such premises will certainly also reflect these initial discriminations and thus the injustice of the initial configuration of the legal order and the institutions in which market activities are embedded.
The conclusion is that, if we apply the Hayekian understanding of justice as a property of intentional human acts, the distributional outcomes of market processes and the state of affairs created by them can be called ‘unjust’ and therefore generate a claim to be corrected in the name of justice exactly insofar as the categories of ‘just’ and ‘unjust’ can be applied to the legal and institutional preconditions shaping market outcomes as well as to the persons responsible for the structure of these presuppositions.
3. The limits of Hayek’s critique of ‘social justice’ and the widening of the perspective
It is astonishing that Hayek refrains from further analysis of the possible implications of his statement, cited above, that ‘only situations which have been created by human will can be called just or unjust’. In my view this reveals what is, despite the essential soundness of his argument against social justice, a clear limitation of his approach.
Hayek fails to consider the possibility that there might exist a higher level of ‘rights’ and of corresponding ‘justice’ which could make it plausible to qualify as ‘unjust’ a determinate state of affairs or distributional patterns resulting from market processes. Although we might agree with Hayek that the distributional outcomes of market processes as such cannot be evaluated according to criteria of justice, we still might evaluate these outcomes and the state of affairs created by them on the basis of other, ‘higher’ or independent criteria which, moreover, are not criteria of distributional justice but are much more fundamental and apply to the legal and institutional framework of society. Hayek does not provide any argument against such a possibility; he simply does not consider it. Note that I do not intend criticism or modification of the structure of Hayek’s verdict against applying the category of justice to the outcomes of market processes. My aim is to show in what way his method and his final verdict on the concept of ‘social justice’ are incomplete and that, nevertheless, his views on the market can, and need to, be integrated into a wider context of justice.
In order to determine what such criteria of justice might be, I wish to recall the classic definition of justice by the great ancient Roman jurist Ulpian and transmitted through the medieval legal and philosophical tradition, especially by Thomas Aquinas, but also referred to incidentally by Hayek (1976, pp. 154, 165). The definition reads: Iustitia est constans et perpetua voluntas ius suum cuique tribuendi (Justice is the constant and perpetual will to render to every man his due).
Once we adopt this classic definition of justice, the question arises whether there is a ‘due’ (ius), that is, ‘rights’ which human persons as members of society possess before they are participants in market processes and independently of their social and economic position – rights which they possess in their capacity as human beings and which therefore do not refer to distributional justice.
The entire Judeo–Christian and subsequent European theological, philosophical, juridical and political tradition is surely, to different degrees, based on this idea. There exists a point of reference of justice, which is human nature: human beings, created in the image of God as free and self-responsible, called to active participation by their proper work, creativity and inventiveness in shaping the world. Most importantly, this initial calling of human beings must not be impeded or frustrated by the legal and institutional framework of society. For this would mean withholding what is ‘due’ to them, that is, their right, and it would therefore be a violation of justice.
From this derives the idea of ‘human rights’ in their most fundamental sense: not as necessary legal rights and claims, and certainly not as claims to a determined share in wealth and opportunities, but as moral claims to be treated as equal qua human beings and with corresponding claims to justice. ‘Human rights’ are something ‘due’, a ius, to counteract or despise which is unjust.
Now, in order not to fall into the trap of the concept of ‘social justice’ as rightly rejected by Hayek, we have to say that from the existence of such rights we cannot infer that determinate market outcomes violate these rights and are therefore ‘unjust’. We cannot say this in exactly the same way as we cannot say that the deaths of human beings caused by an earthquake are ‘unjust’, because an earthquake does not bring this outcome about intentionally. It is simply a natural event. We could, however, call the deaths of these people unjust insofar as they are the consequence of culpable and intentional neglect by those responsible for having fraudulently built poorly designed houses unable to resist a foreseeable earthquake. Analogously, neither the mere fact of inequality, as caused by market processes, nor the facts of poverty or lack of opportunity, as states of affairs, can be considered to be ‘unjust’. So far Hayek is right. But he is not right in denying from the outset that there is no possible perspective from which market outcomes can be called unjust, in the same way as the deaths of people as a result of an earthquake could be the consequence of an injustice and therefore to that extent be intentional and ‘unjust’.
Consider the case, mentioned earlier, where a legal and institutional framework of a determinate market economy is intentionally so designed as to systematically violate the rights of human beings qua human beings, and therefore the basic requirements of justice. This injustice is intentional even if only by voluntary omission: such rights violations take place as a result of not interfering with rather than abolishing a discriminatory framework. In this case, the consequent distortions of market outcomes would be deliberately caused. Therefore, and, insofar as they contradict a valid principle of justice, these distortions could be called ‘unjust’ to the extent they reflect the injustice of the framework.
So we arrive at two levels of justice. At Level One, the anthropological-foundational level, that of human rights and the corresponding legal and institutional framework of society, human beings are equal qua human beings, with a shared ‘human nature’, and as such they possess dignity. They have a claim on their neighbours to have their dignity respected. We can call these rights ‘natural rights’ or ‘human rights’. In economic life, these rights include the right to actively participate as free and self-responsible beings in shaping the world by their proper work, creativity and inventiveness, thereby obtaining a fair share of the product for their own needs. Violating these rights by impeding their exercise is a breach of justice. And intentionally violating them by means of the general configuration of a society’s legal and institutional framework is opposed to what we might still call ‘social justice’.
At Level Two, the level of the ‘catallactic game’ of the market, the outcomes of market processes as such can be qualified neither as ‘just’ nor as ‘unjust’. Yet, as a result of the initial configuration of the legal and institutional framework, these outcomes may be labelled as unjust, not because the market is unjust, but because the initial configuration shaping the market’s distributional outcome may violate justice, and transmit this injustice by distorting market outcomes. This presupposes that, even if we conceive of the legal and institutional framework of a market as itself being an order which has evolved spontaneously over time, such an evolution does not exclude human responsibility for the concrete shaping of this order and, thus, indirectly of the distributional outcomes of market processes.
Now, someone could object that to place so much emphasis on human responsibility for the concrete shaping of the legal and institutional framework of a market economy contradicts Hayek’s concept of legal order and society as ‘spontaneous orders’. But it can be easily shown on Hayekian grounds that there is no such contradiction. Recall that, according to Hayek, the ‘spontaneous order’ of the evolution of civilisation, society, the legal system and the market economy is not the spontaneity of blind or deterministic natural processes but is always shaped by intentionally acting human beings, by governments, lawyers, and legislators whose acts are part of the evolutionary process of such orders (and therefore can turn out better or worse). Thus, Hayek writes regarding the evolution of the legal order, ‘the spontaneous process of growth may lead into an impasse from which it cannot extricate itself by its own forces or which it will at least not correct quickly enough’ (Hayek 1973, p. 88). Thus ‘a real change in the law is required . . .The necessity of such radical changes of particular rules may be due to various causes’ such as ‘that some past development was based on error or that it produced consequences later recognized as unjust’ (1973, p. 89; emphasis added).
According to Hayek, the most frequent cause of the necessity of ‘radical changes’ in the legal framework is ‘that the development of the law has lain in the hands of members of a particular class whose traditional views made them regard as just what could not meet the more general requirements of justice’. He continues: ‘There can be no doubt that in such fields as the law of relations between master and servant, landlord and tenant, creditor and debtor, and in modern times between organized business and its customers, the rules have been shaped largely by the views of one of the parties and their particular interests…’ (1973, p. 89; emphasis added).
These statements demonstrate that Hayek’s idea of spontaneous order allows and even requires raising the question of justice regarding precisely those aspects of the economy in which intentional human acts and corresponding responsibility are involved; and this is the level of the legal and institutional preconditions, the basic rules by which markets work. Therefore, the criteria of justice applying to the framing of these legal rules and institutional presuppositions also indirectly apply to the outcomes of market processes as far as they are shaped – and possibly distorted – by these legal and institutional preconditions.
For example, it corresponds with human dignity to make a living from one’s own work and thereby to acquire through property rights a fair share in the goods of this earth. Now, no market process resulting in winners and losers is morally responsible for the inequality caused by this process. Therefore, categories of justice cannot be applied to them. However, a market process shaped by a discriminatory legal and institutional framework and therefore leading to the exclusion of a determinate group of people from work, keeping them in a state of inescapable poverty and impeding them from becoming property owners, is a market process distorted by the initial injustice of the legal and institutional framework of society. Again, it is not the market process itself which can be called unjust; but in this case its outcome reflects an injustice situated at a more fundamental level and which is culpably caused or allowed to continue to exist by intentionally acting human beings.
The principles which can be applied to evaluate these outcomes are not principles of distributional justice situated at the level of the distributional outcome of market processes, but principles located at a higher level, or of a more fundamental kind, referring to human dignity which all human beings have qua human beings and to which they have a corresponding ‘right’ which is the proper object of the virtue of justice.
In my view this is the sound part of the moral intuition at the root of people’s sense of ‘social justice’ and its corresponding claims. Unfortunately, as a result of fundamental misunderstandings or even ignorance of economics, it has become common to attribute injustice to the free market itself or to ‘capitalism’, competition, profit-seeking and so on. It is not these, however, that are the problem, but the misperceptions that easily pervert people’s sense of justice and thereby generate the notorious ‘social justice talk’ with its equally notorious call for state intervention, redistribution, and so forth.
Unhappily, it is the sound moral intuition of justice itself that becomes perverted by the unfortunate but popular idea that rich people are rich at the expense of the poor, that their wealth is intentionally withheld or even ‘stolen’ from the poor. The origin of this is the erroneous belief that the economy is a zero–sum game, that wealth is not continuously created anew by those who possess it but is a common asset that is limited such that one person’s gain unavoidably means loss or certainly less for other persons, thus impoverishing them.
The perversion of the intuition of social justice can also derive from an egalitarian concept of justice: the idea that inequality as such is unjust. This, of course, is equally false. Naturally, mankind is not created equal in every respect; inequality is therefore unavoidable and in practical life it contributes to enrichment by diversification in manifold ways. Moreover, inequality is a consequence of free decisions, of free choice of action, or at least not caused by someone’s committing an injustice – provided always that the initial configuration of the legal and institutional framework is not unjust and no fraud or other criminal infraction has been involved in market transactions. Finally, the perversion of the sense of ‘social justice’ can also be rooted in the conviction – mostly originating in the aforementioned misapprehensions of the nature of the economy and of justice – that society or the state is supposed to compensate the less fortunate or losers in the market process by redistribution, by income transfers and by establishing a welfare state.
To repeat: in my view there is only one legitimate reason to label market outcomes and corresponding inequalities as ‘unjust’, namely, when the injustice results from the legal and institutional framework that shapes market processes and their outcomes. The fault then is not that of the market, which can be neither just nor unjust. The fault lies in the legal and institutional framework, and those who shaped it or neglected to alter it: human beings such as politicians or citizens are responsible for it, not the market.
Note that I do not contend that market outcomes can be called ‘just’. They can be ‘unjust’, but only in consequence of an unjust initial legal and institutional framework. Any attempt, on the other hand, at adjusting market outcomes to an alleged pattern of ‘social justice’ must fail, because we cannot know what the constituent parts of social justice, that is, ‘just distribution of income, wealth and opportunities’ could be. So market outcomes are either ‘unjust’ (in the above-qualified meaning) or, provided the initial framework is just, ‘not unjust’ or ‘not against justice’. This precisely reflects Hayek’s insight that, as non-intentional spontaneous orders, market outcomes as such cannot be evaluated by criteria of justice. Market outcomes can be ‘unjust’ only by reference to an unjust configuration of the higher-level framework that distorts market outcomes.
These considerations lead us to the following step of the present enquiry into the true meaning of ‘social justice’. On the assumption that there is no alternative to the market as the most efficient way for allocating resources, and that it is the only economic order compatible with a free society, the question arises: what are the criteria of justice for the legal and institutional framework of a market economy?
4. The ‘social justice’ of capitalism and of the free market economy
In 1971 the famous American philosopher John Rawls published a book titled A Theory of Justice. This book changed not only the academic but also the public discourse on social justice.
Hayek, rather surprisingly perhaps, refers very positively to Rawls’s theory of justice, expressing some basic agreement with it (Hayek 1976, p. 100). However, it seems to me that Hayek was acquainted with Rawls’s theory only in a very superficial way. Rawls was a ‘liberal’ in the popular American sense of the word – a redistributionist social democrat, believing in state welfare provision, state intervention in market outcomes by continuously ‘correcting’ property distribution, and an educational system driven mainly by the government. Yet one aspect of Rawls’s theory is particularly attractive, and this caught Hayek’s favourable attention.
Rawls conceived of justice basically as ‘fairness’. Justice as fairness means that what justice refers to are the rules, the institutional configurations and procedures which determine socially relevant outcomes. Justice as fairness is based on the assumption that a society is a ‘cooperative venture for mutual advantage ’ (Rawls 1971, p. 4) and must therefore be organised in a way which allows to everyone to obtain a fair share of wealth, position, education, social esteem and so on, regardless of his or her initial position in society.
Rawls’s theory of justice as fairness is complex and sophisticated. I thus refer to only one feature of it, the so-called difference principle. According to the ‘difference principle,’ inequalities are justified only to the extent that they are advantageous also for the less well off. According to Rawls, the basic device for implementing the difference principle is a progressive tax system and, therefore, redistribution of income and property.
As the American libertarian political scientist and philosopher John Tomasi argues in his book Free Market Fairness, Rawls’s theory of justice and particularly the difference principle is based on the sound assumption that an economic system should be advantageous for everybody; otherwise it would be unfair. He calls this the ‘distributional adequacy condition’ (Tomasi 2012, p. 126). An economic order that, as such and on principle, undermines the position of the most disadvantaged, creating wealth and inequality at the expense of the least advantaged and generally of those who are less well off, would not meet the distributional adequacy condition and therefore would be ‘unfair’ and ‘unjust.’
Tomasi shows that, for a wide range of classical liberals from Adam Smith to Ronald Reagan, this assumption that capitalism and a free market economy are most beneficial for everybody, including the poor, was always a decisive consideration in their moral justification. According to Tomasi, Hayek is no exception (2012, p. 136). Here Tomasi argues that a Hayekian view better fulfils the criterion of the distributional adequacy condition than does Rawls’s theory of justice. Certainly, for Hayek the fundamental rationale for a market economy is that only the market order is compatible with liberty and a free society in which everybody can act according to his or her own knowledge and preferences. Hayek is convinced, however, that for exactly this reason – the primacy of liberty – everyone, including the least advantaged, is given a chance. This is why it is legitimate on Hayekian grounds to call such an order ‘fair’ or ‘just’. Note that in this case the qualification ‘just’ does not refer to the outcome of the market process, but to the legal and institutional initial framework shaping the outcome of market processes.
Let us, therefore – at least for the sake of argument – assume that on a most abstract level Rawls’s difference principle is correct. That is, let us assume that the initial legal and institutional configuration of the economic order must be such that existing or growing inequality is advantageous for all, not excluding the poorest social groups; and that a framing of the basic structure of this kind corresponds to justice so that the outcomes of market processes shaped by it, whatever they are, cannot be called ‘unjust’ and so do not need to be corrected in the name of justice.
I have mentioned Rawls’s contention that the distributional adequacy condition – the difference principle – is best met in a property-owning democracy in which incomes are redistributed by a progressive tax system, even if redistribution implies the slowing down of economic growth. Now, another political philosopher, Jason Brennan, also cited by Tomasi, has shown that this position is self-defeating. Brennan calls this ‘Rawls’ paradox’ (Brennan 2007). The paradox is that the requirements of the difference principle and thus of the distributional adequacy condition are far better met in a society with a completely free market that completely abstains from redistributionist policies and instead gives absolute priority to economic efficiency, that is, the capitalist dynamics of economic growth. But if this is the case, under Rawls’s difference principle such a society would also have to be called more just.
Brennan demonstrates this theoretically using a thought experiment comparing two fictitious societies, called respectively ‘ParetoSuperiorland’ and ‘Fairnessland’. The two societies have the same starting conditions. But while ParetoSuperiorland focuses only on economic efficiency, giving absolute priority to growth, Fairnessland, under the influence of Rawls’s conception of justice, starts redistributing income and wealth according to a fixed pattern of distribution considered to be fair. This requires that its government interfere with the market’s spontaneous allocations of resources, and thus it retards growth. ‘Such interference entails interrupting the information, incentive, and learning structure of the market, thus disrupting the operation of the equilibrium principles that generate efficiency and growth. Rawls has granted us all of this – these are his premises’ (Brennan 2007, p. 293).
Brennan points out that, with the power of compound growth rates, after a generation the poorest in ParetoSuperiorland are much better off in money terms than the poorest in Fairnessland. Brennan not only argues on the basis of this thought model but also makes an empirical case. He admits: ‘It certainly is true that growth does not guarantee a benefit to the poor – it is even compatible with harming them. However, historically, when growth harms the poor, it is usually because property rights regimes and the rule of law are not in place’ (2007, p. 294; emphasis added). This refers precisely to the initial configuration of the legal and institutional framework of an economy on which discourses about social justice should be focused. Cultural factors may also play a role in making market outcomes harm the poorest, like the Indian caste system (but such factors might also be described, at least according to Western standards, as contributing to a deficient property rights regime and unjust derogations from the ‘rule of law’).
We arrive at the conclusion that, in the long run and from a strictly economic point of view, and in the presence of a just initial legal and institutional configuration including the rule of law and the assurance of property rights for all without discrimination, the increased inequality resulting from capital accumulation is much more effective in enriching the poor than is redistribution. So, according to the difference principle, it would also be more just. Especially from the standpoint of future generations, ‘social justice’ seems be on the side of an unfettered free market economy and against any kind of redistribution with the aim of reducing inequality.
The only reason to consider redistribution superior would be a focus – albeit at some expense to future generations – on the short-term improvement of the situation of determinate social groups of poor and disadvantaged people. This again has the same aim as Hayek when he advocates ‘an insurance against extreme misfortune’ (1976, p. 87). This might be a public relief programme for the poor, preferably organised by local communities: not a redistributive policy to remodel society by permanently reducing inequality, but rather part of a public service for those in need.
Note that even short-term advantages for the poorest in consequence of redistributive policies do not necessarily provide real improvement for them. It may be an improvement in current money income, but not necessarily in their opportunities. Real prosperity, wealth and the enhancement of opportunities are created by a rise in productivity which is the consequence of both capital accumulation and technological innovation. As Jason Brennan rightly emphasises: ‘The biggest predictor and cause of increases in worker quality of life is capital accumulation, since this drives up the productivity of labor, and labor prices…’ (2007, p. 294). And this is the point of the whole story. People in ParetoSuperiorland will not be wealthier simply in the sense of money income. They will be better off in every respect: they will be more productive, that is, they will have higher levels of skill and education and therefore of opportunities; the society they live in will be technologically more advanced, which also signifies that more of those goods which previously were luxury goods available only to members of the highest-income class will now be available for mass consumption, including by the poorest. So, even if – because of inevitable capital accumulation – in terms of wealth and money income as reflected in statistics the gap between the richest and the poorest will increase, in terms of the real standard of living including education and opportunities the gap will simultaneously dramatically decrease. We can recognise that exactly this is what has already happened when we compare the gap between everyday living standards, in terms of household appliances, health care, available information technology, means of transportation, education and so forth, of people like Bill Gates and those of present-day blue-collar workers with the gap between the everyday living standards of the very rich in the nineteenth century – say a John Rockefeller or a Andrew Carnegie – and those of an average factory worker at that time. Not even the richest king in the past enjoyed the standard of living which capitalist growth and its technologically innovative power has provided to each citizen in modern societies.
Given the unquestionable efficiency of capitalism and a free market in raising prosperity for all, the real question of ‘social justice’ therefore seems to be the question of the fairness or justice of the initial configuration of the legal and institutional framework making possible this efficiency and giving everybody without discrimination a fair chance of sharing in its fruits. Once it is acknowledged that markets are best in allocating resources efficiently (which Rawls does not deny), and redistribution is ruled out as the best way of meeting the distributional adequacy condition – or the difference principle – we only have to establish the criteria for a fair and just initial legal and institutional framework of a market order which guarantees the respect of the basic human rights of every single person without discrimination. It is clear that, as far as politics and public institution building is concerned, the term ‘social justice’ can have a meaning only in terms of this framework.
This question obviously has nothing to do with questions of material equality or even equality of opportunities as they exist at the beginning of the process; it concerns, rather, solely the rules governing the market process. These are relatively easy to identify. Besides normal provisions of penal law against theft, homicide, fraud, and so forth and the regulation of contracts (i.e. the rule of law), they essentially comprise securing of property rights and the public services needed to enforce them (e.g. land registers). It must be warranted by law that nobody is excluded from acquiring such rights and that possible bureaucratic or other impediments to doing so are abolished. The legal system and institutions must be such that any person, without discrimination of any kind, can make a living from working, whatever form this might take, whether by starting and managing one’s own business or as an employee.
At the level of constitutional law, the legal system must furthermore make sure that no economic interest and no group in the market receives any legal privilege in the form of monopoly rights, subsidies, or other kinds of favour. Any collusion between those holding political power and the players of the ‘catallactic game’ of the market (i.e. businesspeople, entrepreneurs, bankers, investors, employees, and so on) must be banned by law, while freedom of contract in the labour marked must be assured.
This amounts to saying that a basically just order exists when a capitalist market economy is founded on a legal and institutional framework that guarantees the rule of law and a fair regime of property rights, and refrains from redistribution with the aim of correcting the distributional outcomes of the market process. Where this is the case, we can say that it corresponds to ‘social justice’ because we are talking about the justice of the rules that shape society and not the distributional effects of market outcomes.
From yet another, very important, point of view, such an order is again in accordance with social justice: a capitalist market economy which refrains from redistributing income for reasons of ‘social justice’ also implies that human dignity and the claims and rights deriving from it are respected on the basis of multiple sources. For example, in the labour market a just wage is the wage which corresponds to a worker’s productivity and to the contractual obligations freely accepted by the parties to a labour contract. Now, because of a worker’s low levels of education, skill or productivity, such a wage might not suffice to provide a living. Nevertheless, this is no reason to hold that the employer – who already pays for the value of work done – should also be responsible for covering the rest by the additional payment of a ‘family wage’ or ‘living wage’. There is no moral reason for setting up legal minimum wages (and many good economic and ‘social’ reasons, too, against it), no moral basis for demanding, as a requirement of ‘social justice’, the redistribution of some of the income of the richest to supplement workers’ insufficient wages. (In any case, this would also be economically harmful and decrease general prosperity by providing wrong incentives.)
It is exactly at his point, however, that the perspective of ‘social justice’ starts to become even wider. ‘Social justice’ does not merely refer to institutional configurations and state regulations, it does not relate only to politics and public institution building, but is to be understood in a much broader way. Basically, it is human persons who are ‘just’ or ‘unjust’. Therefore, ‘social justice’ also is something attributable not only to the legal and institutional framework of society but also, and even in the first place, to freely and intentionally acting human beings (who, after all, are also the ones responsible for the concrete shaping of the legal and institutional framework, which is precisely why it may be unjust). The concept of social justice applied to human actions refers to the quality of their bearing upon the overall condition of society – the rights, opportunities and legitimate needs of its members – that is, upon the ‘common good’.
Moreover, there is not only the labour market. There exist also markets for social and health services, for education, for insurance against any kind of misfortune, which call into play entrepreneurial initiative. Although, or even exactly because, it is profit-oriented, such entrepreneurial initiative and creativity is necessarily oriented towards satisfying the determined needs and preferences of consumers (including the ‘consumers’ of health provision, education, insurance, old-age provision, and so forth). Otherwise no profit could be possibly made by such entrepreneurial activities. But because there may be needs which cannot be satisfied by profit-seeking entrepreneurial activity, there remains the wide field of non-profit and voluntary and charitable organisations which help to meet the determined needs especially of the poorest, and which form a privileged field for exercising social justice as a virtue. All of this is part of the realisation of social justice in the sense of respecting the dignity of humans as free and responsible beings created in the image of God and their corresponding ‘rights’. It is social justice which becomes ‘solidarity’ and is perfected by charity.
Such things are completely overlooked if social justice and ‘human rights’ are seen only in the context of claims against the state, calling for redistributionist policies which not only are detrimental to the increase of general prosperity but are also morally questionable because they are based on compulsory taxation and therefore a state invasion into the property rights of precisely those citizens who most contribute to economic growth and thus to general prosperity. This has nothing to do with justice, but rather with unjust confiscation which, being moreover economically harmful, is opposed to the common good and therefore to social justice.
With these remarks we have approached a dimension of social justice which is worlds away from current ‘social justice talk’. It is, however, rather close to a way of understanding social justice in the Catholic tradition, to which I now turn.
5. ‘Social justice’ in Catholic social doctrine
The very term ‘social justice’ was most probably first used by the Italian Jesuit and philosopher Luigi Taparelli d’Azeglio. For him, social justice was simply ‘justice between man and man’, which consisted of respecting in every human being i diritti di umanità, ‘the rights of humanity’. This corresponds to what I have attributed above to Level One. Moreover, Taparelli d’Azeglio (1883, p. 152) emphasised that a part of social justice is also to respect the natural inequalities between human beings which are relevant not to their belonging to the human species, but to their place and role in society, such as the difference between a father and a son.
Of course, this has nothing to do with our contemporary concept of ‘social justice’ as an alleged kind of distributive justice. But it is the way the term was invented and then propagated by the nineteenth-century Catholic priest and philosopher Antonio Rosmini in 1848 (Rosmini 2007). Only later was the term ‘social justice’ assumed by the German school of ‘solidarism’ founded by the Jesuit economist and social philosopher Heinrich Pesch, a school in which Gustav Gundlach and Oswald von Nell-Breuning (also Jesuits), the drafters of the encyclical Quadragesimo anno, had been nurtured. Like the ‘principle of ‘subsidiarity’, the term ‘social justice’ was introduced into the common vocabulary by this encyclical, issued by Pope Pius XI on 15 May 1931. Quadragesimo anno used it in a peculiar way, maintaining that competition was not sufficient as a principle to regulate the economy; it needed, so the encyclical says, to be complemented by ‘social justice’ and ‘social love’. According to Nell-Breuning’s well-known extensive commentary on the encyclical, ‘social justice’ referred to the state and its task to establish a legal and institutional order on the basis of which the market could operate for the common good (Nell-Breuning 1932, pp. 169–71). There was no mention of correcting market outcomes by redistribution. Rather, social justice was seen as a supreme regulatory framework established by state authority with a view to channelling market competition according to a principle of order.
This is certainly a use of the term ‘social justice’ that could be understood in the sense I have elaborated so far. It is interesting that a neoliberal economist like Wilhelm Röpke praised the view of Quadragesimo anno as exactly corresponding to his own ‘ordoliberal’ view of a free market economy embedded in a framework of rules assuring that it is not corrupted by monopolies and cartels (Röpke 1944, p. 18). However, social justice as mentioned in Quadragesimo anno refers to the state – that is, according to Nell-Breuning, to the idea that the state is ultimately responsible for the good functioning of a market economy. This assumption is based on the belief that the market cannot regulate itself so that it promotes the common good. Therefore, the idea of social justice as it appears in Quadragesimo anno contains a bias: it readily leads to a mentality which in the end calls for state intervention in order to ‘correct’ the market and its outcomes in the name of ‘social justice’.
Understood in this sense, the older meaning of the term has given way to a more political understanding focusing on the role of the state. This more political meaning is also the meaning of social justice that the Catechism of the Catholic Church Nr. 1928 suggests: ‘Society ensures social justice when it provides the conditions that allow associations or individuals to obtain what is their due, according to their nature and their vocation. Social justice is linked to the common good and the exercise of authority.’ Accordingly, social justice – ensured by ‘society’ and ‘linked to the common good and the exercise of authority’ – appears to lie essentially, or at least predominantly, within the state’s sphere of responsibility.
The statement obviously includes the assumption that only state authority is capable of guaranteeing that the different social forces and individual actions contribute to the common good. It thus opens the way to all sorts of interpretations in terms of economic policies. In the name of ‘social justice’, Catholic social teaching favours, according to the Compendium of the Social Doctrine of the Church published in 2004 by the Pontifical Council for Justice and Peace at the request of John Paul II, ‘social policies for the redistribution of income which, taking general conditions into account, look at merit as well as at the need of each citizen’. The rationale given for this is that the measure of just income should be ‘the objective value of the work rendered’ as well as ‘the human dignity of the subjects who perform it’ (Nr 303).
It seems to me that this confuses the two levels of justice mentioned on Section 3. It pretends to meet the requirements of human dignity (Level One) by correcting market outcomes with redistributive policies or by even interfering with market mechanisms (which concerns Level Two), without any consideration, however, of the origin of the violation of dignity in the configuration of the legal and institutional framework itself (which pertains to our Level One). Like Rawls’s theory of justice, such teaching does not take into account, or even mention, the relationship between economic growth and the rise in productivity and general prosperity on the one hand, and the harmful social and economic consequences of redistributive politics in the name of ‘social justice’ on the other.
Redistributive policies are not directed to the common good but only to the short-term good of particular social groups – unfortunately and typically, of the constituencies of politicians whose concern is being elected or re-elected. Moreover, it is a serious threat to a free society when the ‘needs’ and ‘merits’ of its members, as the Compendium suggests, are to be evaluated by politicians and state bureaucracies, and benefits distributed accordingly. In addition, this opens the way to the corruption as well as the perversion of democracy, by constituency-driven political promises that inevitably cause ever-increasing public indebtedness.
The Compendium thus commits a very frequent error which is characteristic also of Rawls’s Theory of Justice and many similar philosophical theories of justice: it argues on the level of ideal moral reasoning in disregard of real-world conditions and basic economic facts concerning the creation of wealth and the way in which legal and economic measures effectively improve the condition of the poorest. This is why I cannot consider its recommendations helpful for promoting the common good, that is, the overall good in the long run and for all people living in a given society, including the generations to come. Redistributionist social policies serve only particular groups of people, only in the short run and at the expense of the general prosperity of present as well as future generations, too: at the expense, that is, precisely of the common good.
Apart from the required justice of the legal and institutional framework of society in general and of the market in particular – to create and uphold which is the task of state authority – the realisation of ‘social justice’ should be primarily placed in the hands of individual persons acting alone or as entrepreneurs in all kinds of private associations. This corresponds with a more basic meaning of ‘social justice’ typical of an older tradition and also mentioned, briefly but not very clearly, in Nr. 202 of the Compendium. According to this tradition, ‘social justice’ essentially is what justice generally is: a moral virtue of human persons and not a measure of ‘just distribution’ of wealth and income. In this older sense, ‘social justice’ is identified with what Thomas Aquinas called ‘general justice’ and what later has been also called ‘legal justice’. General or legal justice is the justice of individual persons in their actions as far as these actions refer not to the good of a single person but to the common good. In this sense, Antonio Rosmini wrote in La società e il suo fine (1837): ‘public good must be sought in the private citizen; social justice in individual justice. The foundation stone of the social edifice must be virtue, buried deep in the human heart’ (Rosmini 1994, p. 119).
The object of the virtue of justice is the ‘due’, which is the ius, the right of each person. A capitalist who invests his wealth, or part of it, in growth-producing entrepreneurial activity creating workplaces, or an entrepreneur who seeks to make a profit by satisfying consumer needs, thus contributes to technological innovation, to increased productivity and in consequence to a rise in real wages and general prosperity also for generations to come. They contribute more to the common good than any state policy redistributing income and thereby slowing down economic growth and the rise in general prosperity. This, in my view, is what economics teaches and what has to be taken into account when one talks about ‘social justice’. Precisely insofar as ‘social justice’ means the virtue of general or legal justice, the profitable activity of capitalists and entrepreneurs in the free market contributes more to social justice, to the common good, than anything the state can do – except the task of assuring the legal and institutional framework, mainly the regime of property rights which is the state’s specific and indispensable contribution to the common good.
Social justice as a virtue leads to understanding how important it is that all citizens feel responsible for the common good, that they can’t simply delegate this duty of justice and solidarity to the state. And according to the principle of subsidiarity cherished by Catholic social doctrine, they should not delegate it to the state. Subsidiarity, however, does not mean that the state leaves only less important tasks to society while it concentrates on the most important ones, but that it helps and assists the ‘lower’ communities and individuals to fulfil their tasks, without assuming them itself. This is how the principle was defined in Nr. 48 of the encyclical Centesimus annus, an encyclical written by Pope John Paul II in 1991: ‘a community of a higher order should not interfere in the internal life of a community of a lower order, depriving the latter of its functions, but rather should support it in case of need and help to coordinate its activity with the activities of the rest of society, always with a view to the common good.’ This, according to Nr. 15 of Centesimus annus, is also applied to the market economy: ‘Indirectly and according to the principle of subsidiarity’ the state creates ‘favourable conditions for the free exercise of economic activity, which will lead to abundant opportunities for employment and sources of wealth’. This, and not redistribution of income to reduce inequality, is the state’s fundamental contribution to the common good and to social justice.
To conclude: the concept of ‘social justice’ need not be entirely rejected or even relegated to the category of ‘nonsense’, as Hayek claims (1976, p. 78). It is, however, a very insidious term and nowadays mostly used in a vague and emotional way often detrimental to the common good. But there is what we might call a ‘true meaning’ of social justice. It derives from the higher level of considering human dignity as derived from human nature, and the rights springing from that dignity. Taking this into account, we can apply the category of justice to the basic legal and institutional framework of a society, and, regarding the economy, of the free market (mainly the rule of law and a regime of property rights). It makes sense to talk about ‘social justice’ regarding the fairness of this framework, especially with reference to the justice of the persons responsible for the concrete shaping of this framework, which in fact is the basic common good of human society. As ‘social justice’ is essentially a moral virtue, it also applies to all other actions of human beings insofar as they relate to the common good. ‘Social justice’ in this sense applies to the actions of capitalists, investors, and entrepreneurs, and also to citizens feeling responsible for persons in need and for the poor (which should apply especially to Christians).
As it seems to me, Catholic social teaching still suffers from a prejudice against the socially beneficial nature of freedom. It therefore mistrusts market mechanisms and places too much confidence in the state as a promoter of the common good, completely disregarding the terrible dangers of the abuse of power and of ‘government failure’. Being focused too much on moral argument and ideal theory, thereby disregarding the logic of economic thinking, it still does not sufficiently appreciate that it is precisely the spontaneous order of the market that promotes the common good and thus social justice much better than any attempt by means of the state and its bureaucracies to shape society according to a pattern of alleged ‘social justice’.
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[*]An earlier version of this paper was presented at the Towards a Free and Virtuous Society Conference, Seebenstein, Austria, 11–14 September 2014.
 See also Hayek (1960, pp. 257 f., 286). A. J. Tebble (2009) has argued that this claim is inconsistent with the philosophical underpinnings of Hayek’s liberalism. I cannot discuss here Tebble’s arguments. My own critique of Hayek, however, seems to me to resolve a possible problem of inconsistency, while leaving substantially intact Hayek’s rejection of ‘social justice’.
 Legally held property rights can also be unjust as they have a decisive influence on the framework of market processes, may distort them, and may produce outcomes which can be called unjust – for example, if these ‘rights’ are acquired by fraud or conquest and illegitimate appropriation, such as of land, and maintained by excluding others from the possibility of acquiring property rights and even work.
 Several arguments of this kind have been levelled against Hayek. Some of them are discussed in Tebble (2009). My own argument differs from those discussed by Tebble, however.
 Ulpian, Digesta 1.1.10.
 See for more detail on this Rhonheimer (2011, pp. 282–7).
 Note that by contrast the French economist Thomas Piketty (2013) argues for a reduction in inequality (by confiscatory levels of taxation) not so much to help the poor as to reduce inequality per se, which he considers unjust and socially disruptive.
 A basic problem of Quadragesimo anno is its misinterpretation of the causes of the 1929 crash and the subsequent economic depression. The encyclical mentions the problem of the financial and especially the credit system as a main cause, which is certainly correct, but it attributes its malfunctioning to the forces of market competition. In reality, the cause was – besides the catastrophic macroeconomic disequilibria caused by the provisions of the Treaty of Versailles of 1919 – the monetary system which during the ‘roaring twenties’ stimulated an enormous credit expansion causing large-scale malinvestment and a boom which was not sustainable. All the policies meant to combat the following bust were based on state intervention and in fact aggravated the problem precisely because they prevented market forces from making the necessary adjustments (which for a shorter period would have certainly been very painful).
 Nr. 1929–1942 mentions several aspects of social justice, referring to it as a moral virtue exercised by individual human persons. (The part of the Catechism of the Catholic Church that deals with social justice is available at http://www.vatican.va/archive/ccc_css/archive/catechism/p3s1c2a3.htm.)
 For a more detailed critique of this idea still prevalent in modern Catholic social teaching, especially since the encyclical Pacem in terris of 1963 by John XXIII, see Rhonheimer (2013).
 The official English translation of the Compendium of the Social Doctrine of the Church is available at http://www.vatican.va/roman_curia/pontifical_councils/justpeace/documents/rc_pc_justpeace_doc_20060526_compendio-dott-soc_en.html
 Notice that the ’definition of the term ‘common good’ in Catechism Nr. 1906, quoting Gaudium et spes, one of the key pastoral documents resulting from the Second Vatican Council and promulgated by Pope Paul VI in 1965, also applies to what I have just said: ‘By common good is to be understood “the sum total of social conditions which allow people, either as groups or as individuals, to reach their fulfilment more fully and more easily”.’ The common good to be pursued at a given time refers to all, and also to future generations.
 See on this Gregg (2013a; 2013b, pp. 173–5).
 Admittedly, in the following sentence Centesimus annus states: ‘Directly and according to the principle of solidarity [the State must contribute] by defending the weakest, by placing certain limits on the autonomy of the parties who determine working conditions, and by ensuring in every case the necessary minimum support for the unemployed worker.’ Such recommendations can be counterproductive and again it is entirely disputable whether state intervention is the right way to attain these goals. (The text of Centesimus annus is available at: http://www.vatican.va/holy_father/john_paul_ii/encyclicals/documents/hf_jp-ii_enc_01051991_centesimus-annus_en.html)
 See Benedict XVI, encyclical Caritas in veritate of 2009, Nr. 7: ‘To take a stand for the common good is on the one hand to be solicitous for, and on the other hand to avail oneself of, that complex of institutions that give structure to the life of society, juridically, civilly, politically and culturally, making it the pólis, or “city” … This is the institutional path – we might also call it the political path – of charity, no less excellent and effective than the kind of charity which encounters the neighbour directly, outside the institutional mediation of the pólis.’ Available at http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html
 As far as Christians are concerned, we have to keep in mind that the famous ‘preferential option for the poor’ is an option of the Church. It cannot be a preferential option of the market or the state, because these are called to serve the common good and not the good of the poor alone. Here lies one of the roots of ecclesiastical and clerical confusion: applying the theological principle of the preferential option for the poor to the realm of politics and the economy. This is a fundamental category error. Theological principles of mercy, gift and charity cannot and must not be applied to economics and politics. The preferential option for the poor is an option specific to the activity of the Church.