Listen Libertarians!: A Review of John Tomasi’s “Free Market Fairness”

Abstract:

John Tomasi’s 2012 book, Free Market Fairness, has been well received. On the dust jacket, Tyler Cowen proclaims it “one of the very best philosophical treatments of libertarian thought, ever” and Deirdre McCloskey calls it a “long and friendly conversation between Friedrich Hayek and John Rawls — a conversation which, astonishingly, reaches agreement.” The book does present an authoritative state of the debate across the spectrum from right libertarianism, on one end, to high liberalism (that shares some ideas with democratic socialism), on the other end. My point is not to question Tomasi’s own version of “market democracy” as a remix of Hayek and Rawls, but to use his sympathetic restatements of views across the liberal spectrum in order to show the basic misframings and common misunderstandings that cut across the liberal-libertarian viewpoints surveyed in the book. The heart of the debate is not in the answers to carefully framed questions, but in the framing itself.

Keywords::

• distributive justice
• free market fairness
• John Tomasi
• libertarian thought

JEL Classification Codes::

• B53
• D63
• J54
• P1

Notes

¹ In contrast, a comparable intellectual history from a standard liberal perspective (e.g., Israel 2010) ignores the alienation-delegation distinction emphasized by Quentin Skinner (1978) and James Buchanan (1999), and frames the issue as democracy based on consent of the governed versus the coercive systems of the past based on divine right, aristocracy, patriarchy, and conquest.

² Libertarian thought does have a faux or sham “theory of inalienable rights” (mentioned by Tomasi) that I treat in the fourth section of this article.

³ More information is available at http://marginalrevolution.com/marginalrevolution/2014/07/anarchy-unbound.html.

⁴ More information is available at https://fee.org/articles/introduction-to-proprietary-cities.

⁵ More information is available at http://startupcities.org/.

⁶ More information is available at www.seasteading.org/.

⁷ More information is available at http://marroninstitute.nyu.edu/content/blog/charter-cities-on-future-tense.

⁸ For more on the analysis of alienation versus delegation contracts, see David Ellerman (1992, 2005, 2010b).

⁹ On “Marxism as a capitalist tool,” see David Ellerman (2010a).

¹⁰ According to the standard texts, “[s]ince slavery was abolished, human earning power is forbidden by law to be capitalized. A man is not even free to sell himself: he must rent himself at a wage” (Samuelson 1976, 52, italics original). Or “[w]e do not have asset prices in the labor market because workers cannot be bought or sold in modern societies; they can only be rented. (In a society with slavery, the asset price would be the price of a slave)” (Fischer, Dornbusch and Schmalensee 1988, 323).

¹¹ For a treatment of the labor or natural rights theory of property and related questions, see David Ellerman (1992, 2014), and for more on “self-ownership,” see Carole Pateman (2002).

¹² “One can even say that wages are the rentals paid for the use of a man’s personal services for a day or a week or a year. This may seem a strange use of terms, but on second thought, one recognizes that every agreement to hire labor is really for some limited period of time. By outright purchase, you might avoid ever renting any kind of land. But in our society, labor is one of the few productive factors that cannot legally be bought outright. Labor can only be rented, and the wage rate is really a rental” (Samuelson 1976, 569).

¹³ The claim that residual claimancy was “owned” as part of the capital ownership, but was transferred in the rental contract does not survive a simple symmetry argument. A given productive opportunity might have capital rented from capital suppliers A, B, and C, so it makes no sense to hold that the same residual claimancy in that opportunity was “owned” by each of many suppliers before the rental contracts.

¹⁴ This is a conceptual point about the structure of property rights, and it is not about the bargaining power or transaction costs involved in renting capital out of a corporation.

¹⁵ Economists can understand this simple point about residual claimancy before they turn to finance theory (and capital theory). Corporate finance theory (as well as the older capital theory) is based on definitions that capitalize the future value of the profits that result from residual claimancy into the current value of the capital asset (typically a corporation), even though the market contracts that amount to residual claimancy have hardly been made now for the entire future time periods. Hence, there is no present property right to those future profits and that capitalized value cannot be added to the “value of the corporation” (or other capital asset) as if it were currently owned by the capital owners. Thus, economists can understand the point in some non-threatening contexts, but the point is “unavailable” in other important and ideologically sensitive contexts where economists are called upon to fulfill their social role of giving a “scientific” account of the current system.

¹⁶ Note that this is exactly the sequence followed in the firm when it is realized that “productive property” is rentable, so the “Rulership” over employees could not be based on that “Ownership,” but must be based on the “Contract of Subjection” between employees and employer.

¹⁷ For still more on the symbiotic misframings mutually agreed upon by Marxism and libertarian thought, see Ellerman (2010a).

¹⁸ For instance, Eric McKitrick (1963) collects essays of fifteen pro-slavery writers; Drew Gilpin Faust (1981) collects essays from seven pro-slavery writers; Paul Finkelman (2003) collects seventeen excerpts from pro-slavery writings, but none include a single writer who argues on a contractual basis, such as Samuel Seabury, not to mention the whole alienable natural rights tradition of John Locke, Thomas Hobbes, Hugo Grotius, Samuel Pufendorf, Luis de Molina, Francisco Suarez, and many others (see Ellerman 1992).

¹⁹ For instance, in Louisiana, legislation was passed in 1859 “which would enable free persons of color to voluntarily select masters and become slaves for life” (Sterkx 1972, 149).

²⁰ The crown jewel of modern economics — the fundamental theorem of welfare economics that a competitive equilibrium is allocatively efficient — must assume that the legal system has been “modified to permit individuals to sell or mortgage their persons” (Christ 1975, 334). Otherwise, there might be willing parties on both sides of such an outlawed contract, so a competitive equilibrium would not be allocatively efficient (Pareto optimal).

²¹ For more on inalienable rights theory, see Ellerman (1992, 2005, 2010b).

²² I could have dedicated a separate section in this article on the misframing of the “distributive shares metaphor” since, in fact, one party holds one hundred percent of the input liabilities and owns all of the produced outputs. The grip of the distributive shares metaphor is so strong that one will not find that simple fact in any modern economic textbooks. However, an early twentieth century economic sociologist is still able to state the facts: “These questions never bother the manufacturer or his employee. They both know that, in actual fact, all of the product belongs to the capitalist, and none to the laborer. The latter has sold his labor, and has a right to the stipulated payment therefore. His claims stop there. He has no more ground for assuming a part ownership in the product than has the man who sold the raw materials, or the land on which the factory stands” (Fairchild 1916, 66). The distributive shares metaphor ignores the question of who that one party should be, and instead focuses on the size of the liability to an input supplier and treats the liability (e.g., human rentals or wage-salary payments) “as if” it represented a “portion of the day’s product.” The real question is the pre-distributive question of who is to be the firm in the first place (Ellerman 2017). Arguing about “distributive shares” in the human-rental system is a misframing akin to arguing about the distribution of real income (e.g., food, clothing, and shelter) in the previous human-ownership system of slavery.

Additional information

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David Ellerman

David Ellerman is a visiting scholar at the University of California at Riverside. He works in the fields of economics and political economy, social theory and philosophy, mathematical logic, and quantum mechanics.