June 6, 2006

Economic Thoughts, Part XVI: The Ethics of Redistribution

This posting is Part XVI in a series of postings about economic thoughts.

Robert Nisbet once said: "Only Hayek has rivaled Bertrand de Jouvenel in demonstrating why redistributionism in the democracies inexorably results in the atrophy of personal responsibility and the hypertrophy of bureaucracy and the centralized state instead of in relief to the hapless minorities it is pledged to serve." So what are some of the ethical issues that arise out of redistributionist public policies?

In the Introduction to Bertrand de Jouvenel's book, The Ethics of Redistribution, John Gray writes:

Bertrand de Jouvenel's study in the ethics of redistribution is distinctive, in the first instance, because it focuses precisely on the morality of redistribution and not on its side effects on incentives...[it] embodies a fundamental challenge to the values expressed in redistributionist thought...[he] is concerned with the impact on individual liberty and on cultural life of redistribution rather than with its effects on productivity...

Gray continues:

...he is careful to distinguish redistributionism from other, superficially similar doctrines...he shows clearly how it differs from agrarian egalitarianism...redistributionism is not socialism...

De Jouvenel makes another fundamental distinction within redistributionism itself. Modern redistributionism encompasses two wholly disparate elements: the belief that government should be centrally involved in the relief of poverty, and the belief that economic inequality is itself unjust or evil...

...He develops an important empirical criticism of egalitarian redistributionism when he observes that the resources needed to support a subsistence minimum cannot be derived solely, or even primarily, from taxation of the rich. Such resources must be extracted from the middle class, who are also the beneficiaries of income-transfer schemes...[such] transfer schemes [are] extremely complex and sometimes regressive...

Redistributionist policy is condemned by de Jouvenel, in addition, for undermining the sense of personal responsibility. It does this by transferring authority for crucial life-decisions from the individuals who make them to the State. By catering for all the basic needs of the individual, the State leaves him with authority only in the sphere of determining how to spend his pocket money...

For de Jouvenel, however, the most profound result of redistributionist policy is the impetus it gives to the baleful process of centralization. If the state confiscates high incomes and imposes penal rates of taxation on savings and investment, the state must take over the saving and investment activities that private individuals are no longer able to undertake. If, because of the confiscation of higher incomes, there are important social and cultural activities that can no longer be sustained privately, such as provision for high culture and the arts, then once again the state must assume responsibility for such activities through a program of subsidy. Inevitably, the state comes to exercise an ever-increasing degree of control over them. The consequence of redistributionist policy, accordingly, is the curtailment of private initiative in many spheres of social life, the destruction of the man of independent means, and the weakening of civil society...

...Insofar as it is the creation of redistributionist ideology, the modern welfare state is not defensible by reference to any coherent set of principles or purposes. It has not significantly alleviated poverty but has instead substantially institutionalized it...And Hayek's conjecture...that the redistributionist state is bound to be an expansionist state, like de Jouvenel's earlier warning, has been increasingly borne out by events...

...Nozick...like de Jouvenel...shows, first, that the attempt to impose an approved pattern on the social distribution of goods requires continuous interference with individual liberty, since gifts and free exchange will constantly subvert the pattern...

Redistributionist policy embodies an abstract or false individualism in which the intermediary institutions that are the indispensable matrix of individuality are neglected or suppressed. It is especially hostile to the institution that is the cornerstone of civil society - the family...

It is in the more recent work of Hayek that de Jouvenel's analysis is most strikingly paralleled. In the second volume of his trilogy Law, Legislation and Liberty, entitled The Mirage of Social Justice...Hayek's first and perhaps most radically original thesis is that no government or central authority can know enough to be able to realize or impose the preferred distributional pattern...Whatever the distributional principles, the knowledge needed to implement them is, except in a few limiting cases, so dispersed throughout society and so often in tacit or practical form that it is usually impossible for government to collect it in any usable form. This irretrievable dispersion or division of knowledge in society erects an insuperable epistemic barrier to the realization of virtually all contemporary distributivist conceptions...

There is a second strand of argument in that strengthens de Jouvenel's case against redistribution. This is the claim that, even were the government able to acquire the knowledge needed to implement its preferred distributional principles, there exists no consensus in society as to how the different principles are to be weighted when they come into conflict with one another...Because of such inevitable conflicts among its constitutive values, redistributionism cannot fail to spawn bureaucracies with wide discretionary powers. But the large margin of discretionary authority exercised by the apparatus of redistribution is difficult to reconcile with the institution of the rule of law that is one of the foundations of a free society.

There is a final strand in Hayek's argument that links it with the analyses of de Jouvenel by James Buchanan. This is the proposition that, in the absence of any principled justification of redistributional policy, it is best theorized in terms of its beneficiaries. Redistributionism then comes to be intelligible as a system of ideas whose function is to legitimate the interests of expansionist bureaucracies and, in general, to insulate well-established interest groups from the negative side-effects of economic change. Redistributionism thus emerges, at last, as the conservative ideology of the interventionist state and its client groups...

de Jouvenel himself writes:

Redistribution and the scandal of poverty

What has now come to the fore, as against the ideal of fair rewards and brotherly love, is the ideal of more equal consumption. It may be regarded as compounded of two convictions: one, that it is good and necessary to remove want and that the surplus of some should be sacrificed to the urgent needs of others; and two, that inequality of means between the several members of a society is bad in itself and should be more or less radically removed.

The two ideas are not logically related. The first rests squarely upon the Christian idea of brotherhood. Man is his brother's keeper...[and] has a moral obligation to help the unfortunate, an obligation that rests most heavily, though not exclusively, upon the most fortunate. There is, on the other hand, no prima facie evidence for the current contention that justice demands near equality of material conditions. Justice means proportion. The individualist is entitled to hold that justice demands individual rewards proportionate to individual endeavors...It seems therefore reasonable to deny simultaneously that our present society is just and that justice is to be achieved by the equalization of incomes.

It is, however, a loose modern habit to call "just" whatever is thought emotionally desirable. Attention was legitimately called in the nineteenth century to the sorry condition of the laboring classes...The idea of proportion then came to be applied to the relation between needs and resources...

The first feeling was almost the only one at work in the early stage of redistributionism. The second has almost gained the upper hand in the latter stage...

At all times the revelation of poverty has come as a shock to the chosen few: It has impelled them to regard their personal extravagance with a sense of guilt, has driven them to distribute their riches and to mingle with the poor. In every case one knows of in the past, this has been associated with a religious experience...

However, in our century the feeling that has assailed not merely a few spirits but practically all the members of the leading classes has been of a different kind...While the discovery of poverty, coupled with an assumption of the impossibility of removing it, had formerly brought about a revulsion against riches, this time a deep-rooted appreciation of wordly goods, coupled with a sense of power, caused an onslaught on poverty itself. Riches had been a scandal in the face of poverty; now poverty was a scandal in the face of riches...The increasing goodness of civilization, the increasing power of man, were to be finally demonstrated by the eradication of poverty.

Thus, charity and pride went hand in hand...Thus, redistribution was sped on its way by a feeling, or pattern of feelings...

The notions of relief and of lifting working-class standards merged

We must, however, note that redistribution appears as a novelty only in contrast to the practices immediately preceding it and in the choice of its agent, the State...

The more redistribution, the more power to the State

Already, when stressing the loss of investment capital which would result from a redistribution of incomes, we found that the necessary counterpart of lopping off the tops of higher incomes was the diversion by the State from these incomes of as much, or almost as much, as they used to pour into investment; the assumption which followed logically was that the State would take care of investment: a great function, a great responsibility, and a great power.

Now we find that by making it impossible for individuals to support cultural activities out of their shrunken incomes, we have developed upon the State another great function, another great power.

It then follows that the State finances, and therefore chooses, investments; and that it finances cultural activities and must thenceforth choose which it supports...the State must support literature and the arts either as buyer or as provider of beneficia to the producers, or in both capacities.

This is a rather disquieting thought. How quickly this State mastery follows upon measures of redistribution we can judge by the enormous progress toward such mastery which has already followed from limited redistribution...

A redistribution of power from individuals to the State

Our examination of the redistributionist ideal in theory and practice has led us gradually away from our initial contrast between rich and poor toward quite another contrast - that between individuals on the one hand, and the State and minor corporate bodies on the other.

Pure redistribution would merely transfer income from the richer to the poorer. This could conceivably be achieved by a simple reverse-tax or subsidy handed to the recipients of lower incomes from the proceeds of a special tax on higher incomes. But this is not the procedure that has prevailed. The State sets up as trustee...and doles out services and benefits. In order to avoid the creation of a "protected class," a discrimination fatal to political equality, the tendency has been to extend the benefits and services upward to all members of society...

The more one considers the matter, the clearer it becomes that redistribution is in effect far less a redistribution of free income from the richer to the poorer, as we imagined, than a redistribution of power from the individual to the State...

Redistribution incidental to centralization?

In our exploration, we have found ourselves repeatedly coming across centralization as the major implication of redistributionist policies...Thus, the consequence of redistribution is to expand the State's role. And conversely...the expansion of the State's takings is made acceptable only by measures of redistribution.

We then may well wonder which of these two closely linked phenomena is predominant: whether it is redistribution or centralization. We may ask ourselves whether what we are dealing with is not a political even more than a social phenomenon. This political phenomenon consists in the demolition of the class enjoying "independent means" and in the massing of means in the hands of managers. This results in a transfer of power from individuals to officials, who tend to constitute a new ruling class as against that which is being destroyed...

This leads the observer to wonder how far the demand for equality is directed against inequality itself and is thus a fundamental demand, and how far it is directed against a certain set of "unequals" and is thus an unconscious move in a change of elites...

Part XVII to follow...

For previous postings on Economic Thoughts, refer to:

Part I: What is Economics?
Part II: Myths About Markets
Part III: Why Policy Goals are Trumped by Incentives They Create & the Role of Knowledge in Economics
Part IV: The Abuse of Reason, Fallacies & Dangers of Centralized Planning, Prices & Knowledge, and Understanding Limitations
Part V: The Relationship Between Economic Freedom and Political Freedom
Part VI: More on the Relationship Between Economic Freedom and Political Freedom
Part VII: The Role of Government in a Free Society
Part VIII: The Unspoken, But Very Real, Incentives That Drive Governmental Actions
Part IX: More on the Coercive Role of Government
Part X: The Power of the Market
Part XI: Prices
Part XII: I, Pencil - A Story about the Free Market at Work
Part XIII: It is Individuals - Not the Society, Government or Market - Who Think & Act
Part XIV: On Equality
Part XV: Consequences of Price Controls

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This is the third time I've posted this question. It's very simple. Perhaps this time you might answer it?

My question: after wading through all the turgid and pompous prose, all of these entries advocate circumstances of low taxes, small gov't and a lack of gov't regulation in business, commerce, and industrty.

In effect, this is the situation that existed in the 1890s.

Are you prepared to argue that the 1980s were a period of idyllic existence for the vast majority of Americans? Or was the time idyllic only for those at the top of the economic pyramid.

Keep in mind that the 1890s are when the Newport mansions were built and used as a summer home. Why do you advocate we return to such conditions?

Is that simple enough? Do you care to answer that very direct question?

Posted by: klaus at June 7, 2006 12:22 PM


I don’t think your question is as deeply profound as you think it is.

You argue that support for “low taxes, small gov't and a lack of gov't regulation in business, commerce, and industrty” is an automatic endorsement of life-as-it-was in the 1890’s

Does that mean that what I assume is your support for high taxes, big government, and extensive government regulation of economic and political life automatically implies an endorsement of the Cuban or North Korean systems as they are right now?

Posted by: Andrew at June 7, 2006 2:50 PM


Our current system is one of reasonably large gov't, moderately high taxes (especially the effective rate on corporations) and more than a little gov't regulation. However, our system does not resemble N Korea or any of the other bogey men you may care to toss out.

However, you cannot point to an example of a situation when there existed conditions of low taxes, small gov't, and little-to-no gov't regulation that were not de facto oligarchies run wholly for the pleasure and benefit of the wealthy and powerful.

My point is that the conditions advocated have existed, and they have always produced pernicious results for the vast majority of the populace. As a result, the idea of wanting to return to those circumstances seems bizarre, to say the least.

It is not that the author here is necessarily endorsing the conditions of the 1890s; I am saying that foolishly re-creating those circumstances of low taxes, small gov't, and little-to-no regulation will, almost inevitably, re-create an oligarchy as is existed in the 1890s.

Posted by: klaus at June 7, 2006 9:53 PM