Economic Justice, Desert, and Capitalism (Again)

In high school and college, I became very interested in economic philosophy, specifically theories of distributive justice that seek to establish criteria for determining whether a particular distribution of resources within a society is just. When I started this website in 2011, I wrote a lot about these topics, including these two pieces about desert theory in 2014 and 2015 that have been excerpted for recent discussions on X. These days I don’t really write about it much, though I did record a one-hour YouTube video about desert theory a couple of years ago.

As things go on X, the back-and-forth on the topic has featured the usual mix of confusion, stupidity, and deliberate misreading. Clarification does not ever really help such matters because most posting on X seeks in-group approval not accuracy in any ordinary sense. But I do really like this topic and am happy to have an opportunity to discuss it again, especially as I have developed slightly different ways of talking about it in the last decade.

As you might imagine, there are quite a few competing theories of distributive justice, including:

Desert — A just distribution is one that distributes to each person an amount commensurate with their contribution.
Utilitarianism — A just distribution is one that maximizes the population’s aggregate utility, i.e. happiness or well-being.
Egalitarianism — A just distribution is one that maximizes equality or the condition of the worse off.
Voluntarism — A just distribution is one that results from voluntary economic processes.
Democracy — A just distribution is one that results from democratically legitimate laws.

There are more and these are simplified groupings and descriptions, but they are good-enough for our purposes here.

In this list, the first three theories focus on the distributive result to determine whether justice has been achieved while the last two theories focus on the process that generated the distributive result.

As pro-capitalist philosopher Chris Frieman noted in his contribution to the X discussion, “virtually all defenses of capitalism made by economists and political philosophers are rooted in efficiency or rights, not desert theory.” By “efficiency,” he is presumably referencing utilitarianism and by “rights,” he is either referencing voluntarism or perhaps natural rights theories.

From my survey of the writings on this topic, Frieman is correct. Virtually no pro-capitalist philosophers base their arguments in appeals to desert, especially not these days. But in my experience, the majority of non-philosophers do so. Indeed, one of the pieces I linked above was in response to Noah Smith doing so and the discussion on X was full of people attempting desert-based justifications for capitalist income distributions.

Desert Theory

To argue that capitalist distributions correspond to desert, an individual needs to do two things:

Articulate what kinds of contributions or characteristics make one deserving. This is sometimes called the “desert base.”
Show that capitalist distributions are patterned such that each person’s distributive share aligns with their share of the desert base as you define it. People who have more of the desert base (which I will describe as having “more desertils”) should receive a greater distribution than those who have less of the desert base (“less desertils”). Likewise, people who have the same amount of the desert base (“same desertils”) should receive the same distribution.

The most straightforward way to construct such an argument is to start by looking at the capitalist distributive result and then work backwards to find some way of defining a desert base that corresponds with that distributive result. If you can achieve that, others can still critique your position by arguing that you have chosen the wrong desert base or by rejecting desert theory altogether. But you will at least have gotten an argument off the ground. If you can’t even find a desert base that matches the pattern of capitalist distributions, then your position is dead on arrival.

So what could the desert base for capitalist distributions actually be? Can someone articulate one that actually works?

When it comes to the capitalist distribution of labor income among laborers, there is a plausible-enough desert base: personal productivity. More productive workers receive more labor income. Less productive workers receive less labor income. Similarly productive workers receive similar labor income. There are some possible objections to this account of things of course, but the argument at least gets off the ground.

Although personal productivity is a plausible-enough desert base for labor income, it fails entirely for capital income. This is because, as Joan Robinson put best, even if we want to say that capital is itself productive, “owning capital is not a productive activity.” This is the point I was getting at in my X post that set off the recent discussion, where I mused that “blind trusts, where the owner gives money to a fund manager and the fund manager invests it without telling the owner where they invest it, is like a thought experiment you would construct to tease out whether capitalists actually do anything for their capital income.”

Of course, the non-productiveness of owning capital is not exclusive to blind trusts. The interests, dividends, rents, and capital gains that flow to owners have nothing to do with any work or productivity they are contributing. This is why it is possible for a stream of capital income to be received by someone in a coma and even by someone who is dead through an estate. This is why it is possible for capital income to be received by entities that are not even humans, such as foundations and sovereign wealth funds. This is why it is possible for capital income streams to be shifted from one person to another via transferring of assets, such as through inheritance. None of this can be said of labor, laborers, or labor income.

Given that the personal productivity desert base does not fit with capital income, a desertist argument for capitalism has to either ditch personal productivity for some other desert base or articulate a desert base that has additional components.

One way of expanding the desert base in attempt to also justify capital income is to add “undertaking risk” to it. This is what Noah Smith attempted to do in our clash a decade ago and what almost all of the discussion on X was about.

Although “undertaking risk” is something you could describe capital owners as doing in general, it is not the case that the capital income distribution matches this desert base. I explained this well in my prior piece, but for novelty sake, I will give a different presentation of this point here.

Imagine three people — Persons A, B, and C — all of whom are identical in all relevant ways except that Persons A and B have undertaken risk by purchasing and owning the same amount of equally risky financial assets while Person C opted to put the same amount of money under the mattress. Using the language of “desertils” discussed above, we could say something like Persons A and B both have 100 desertils owing to their undertaking of risk while Person C has 0 desertils.

If capitalist distributions were being done according to this “undertaking risk” desert base, then Persons A and B should receive the same distribution because they both have 100 desertils. Also, Persons A and B should receive a greater distribution than Person C who has 0 desertils. Instead, this happens:

Person A’s investment works out and they receive $1,000.
Person B’s investment fails and they lose $100.
Person C neither gains nor loses any money.

This outcome fails to comply with the requirements of desert. Person A got a greater distribution than Person B despite each having 100 desertils. Even Person C got a greater distribution than Person B despite the fact that Person C had 0 desertils and Person B had 100 desertils.

In the X discussion about this analysis, most of the negative reactions made one or both of the following points:

Risk, by definition, results in people who undertake identical risk receiving different rewards.
If we were to make it so that people who undertook identical risk received identical rewards, capital markets and capitalism would not work.

To this I respond:

Exactly. The way compensating for risk works is inherently incompatible with any desert theory.
Exactly. The way capital markets and capitalism works is incompatible with any desert theory.

What is happening with a lot of these responses is that those making them are responding to excerpts of the piece without understanding how those excerpts function in my overall argument about capitalism and desert. In other cases, what’s likely going on is that people are simply too stupid to follow any kind of philosophical argument and therefore cannot distinguish between the claims “a desert theory that uses undertaking-risk as the desert base would have to compensate all risk-takers equally” and “Matt Bruenig thinks our economic system should compensate all risk-takers equally.” For these latter people, I am not sure if informing them that I do not believe in desert theory would make it easier for them to grasp the difference between these claims or just make their heads spin further.

The other substantive reactions to the argument typically just shifted into justifying capital income using one of the other distributive justice theories, most commonly utilitarianism and voluntarism. I have things to say about the compatibility of capitalism with those other theories of distributive justice as well, but for our purposes here, it suffices to say that having a utilitarian or voluntarist justification for capital income is not the same thing as having a desertist justification for it. I am merely pointing out that that capitalism is incompatible with desert theory.