Why Justice Mattered to Rothbard

When the South African government first proposed to enact a law permitting them to expropriate any property without compensation, the then conservative UK Prime Minister Teresa May said this would be fine as long as the government does it legally. She missed the point. The whole purpose of the law was to ensure that it is legal for the government to do exactly that.

The case of legal expropriation without compensation shows the importance of Friedrich Hayek’s rejection of “mere legality”—in Hayek’s theory of the rule of law, it is not enough that a rule be duly enacted into law. It must also maximize individual liberty and minimize government coercion. By Hayek’s test, the South African expropriation law fails to meet the requirements of the rule of law.

Murray Rothbard would go further, and he would reject any law allowing the government to steal property from citizens as criminal and unjust. This is why he argued that a defense of liberty, to be of any use in “the political arena,” must be grounded in a theory of justice.

In his essay “Justice and Property Rights,” he argued that the claim by economists to offer a “value free” or wertfrei utilitarian defense of free market exchange fails to defend liberty, because a mere defense of free markets and private property rights often ends up in the position reflected by Mrs. May—endorsing whichever legal definition of property rights is favored by the authorities.

The easy response is to argue that Mrs. May was no economist. She was a politician saying whatever seemed to her to be politically expedient. One could argue that an economist, by contrast, need not have any theory of justice if all he is doing—as an economist—is analyzing the exchange and explaining the costs and benefits of the transaction for both parties, without expressing a view on whether the underlying property rights were just or whether the exchange is just.

On utilitarian grounds, the South African expropriation scheme could be criticized as wasteful and deleterious to economic stability, not to mention giving government officials an incentive to expropriate citizens’ property in circumstances where the costs to the owner outweigh the benefits to the public. The proposal can certainly be criticized without addressing its moral implications.

But Rothbard argues that, in avoiding expressing value judgments, a utilitarian runs the risk of ultimately endorsing blatant theft. This is incompatible with a defense of individual liberty. As Rothbard says, “surely not even the supposedly wertfrei economist can continue to blithely endorse the proposed exchange of ownership titles” in a case where he knows that the parties are exchanging stolen property. Yet, if he objects, the wertfrei economist would have to acknowledge that exchange based on theft is “improper and unjust.” He would end up implicitly revealing his theory of justice.

Rothbard’s point is that a utilitarian defense of private property as the foundation for free markets will necessarily “proclaim the justice and the propriety” of the prevailing institutions because, in endorsing voluntary exchange based on private property, the economist must acknowledge “the proper owner of title” to the property.

In short, for an economist to say that X and Y should be free to trade Good A for Good B unmolested by third parties, he must also say that X legitimately and properly owns good A and that Y legitimately owns Good B. But this means that the free-market economist must have some sort of theory of justice in property rights; he can scarcely say that X properly owns Good A without asserting some sort of theory of justice on behalf of such ownership.

It would be unlikely—although certainly not impossible—for a wertfrei economist to respond that he simply does not care whether the property is stolen or not. But in most cases, the argument of the wertfrei economist is not that he does not care about justice, but that justice is not relevant to a strictly economic analysis of the problem.

To put the point another way, Rothbard is not arguing that economics should not be value free—on the contrary, he is arguing that economists should apply their economic insights to “the political arena” in defending free market exchange and private property, because insight into the economics of private property is necessary in understanding why it is important to defend private property rights in the first place.

Strictly speaking, of course, the exchange of stolen property can be rejected on utilitarian grounds, in exactly the same way as property rights are defended on utilitarian grounds. It is usually impolitic and imprudent to encourage the exchange of stolen goods, for many reasons such as unwittingly incurring liability as an accessory to crime.

One could argue that the costs of theft outweigh any benefits, and that, therefore, a legal system that permitted widespread expropriation, as proposed in the South African case, would be economically disastrous. It could be said that one need not go further to consider whether it would be immoral, unethical, or unjust.

At the same time, one could imagine a hypothetical case where there is no cost to exchanging stolen goods, and much to be gained. David Gordon gives this example:

For example, some people don’t understand the issue of whether it’s all right to steal money from someone, if it’s stipulated that no one will ever know about it and the owner won’t be seriously harmed. They will say, “But if no one will ever find out, what could be the issue?”

In that case the wertfrei economist might indeed adopt the approach Rothbard criticizes, namely, to endorse the exchange. As Rothbard sees it, this would amount to “implicitly maintaining another theory of property titles: namely, that theft is justified.”

The wertfrei economist could respond that it is no part of his role to express a view on the injustice of theft, merely on the costs and benefits of the exchange. He could argue that he leaves the justice question to others and does not, qua economist, get involved in considerations of justice. Rothbard gives the examples of Ronald Coase and Harold Demsetz:

But Coase and Demsetz have failed to develop any theory of justice in these property rights; or, rather, they have advanced two theories: one, that it “doesn’t matter” how the property titles are allocated, so long as they are allocated precisely; and two, that the titles should be allocated to minimize “total social transaction costs,” since a minimization of costs is supposed to be a wertfrei way of benefitting all of society.

One need not necessarily agree with Rothbard’s criticisms of utilitarianism to acknowledge the power of his argument in defense of justice. In ordinary human discourse the assertion that the justice of the initial allocation of property rights “doesn’t matter” may make sense in narrowly defined analytical contexts, but it leaves the defense of property rights open to precisely the accusations levelled by socialists, namely, that the distribution of private property is unjust.

It is no answer, faced with accusations of injustice, to assert that the justice of the case is irrelevant or of lesser importance than the costs and benefits. That answer leaves questions of justice to be decided by the only people prepared to march under the banner of justice—namely, the statists and the social justice warriors:

Coase and Demsetz, along with all other utilitarian free-market economists, implicitly or explicitly leave it to the hands of the government to define and allocate the titles to private property.

Rothbard argues that the science of liberty—libertarianism—ought for that reason to develop a theory of justice. He argues that by “abjuring any theory of justice,” utilitarians end up “endorsing as right and just whatever the government happens to decide; that is, by blindly apologizing for the status quo.”