I’ll start where David Schmidtz leaves off. He concludes his contribution to this issue with the statement that “A truly foundational theory would start by acknowledging that there is a prior moral question about which inequalities are ours to arrange.” That is an extremely important question and one that is rarely, if ever, addressed by advocates of egalitarian redistribution of wealth, income, or welfare. Most–perhaps all–of those who are intent on eradicating inequalities of wealth, or income, or welfare start by assuming that they are entitled to rearrange the lives and entitlements of other people. It’s just obvious to them that they have a legitimate right to determine how other people live. Of course, they assume that it’s not “they” who have those rights; rather it’s the state, which is assumed to be their–er, our–agent, that has those rights.
Underlying the assumption that the state is the rightful agent to allocate goods is a theory of rightful authority. In the past, it was common to rest such rights in the ruler on the basis of theories of divine right or inherent racial or class superiority. Those are rarely invoked today. Instead, we typically find a theory of rightful authority that rests on further dubious theories of value and desert, which are used in the attempt to justify the belief that the state is the rightful allocator of goods. These theories are a throwback to primitive views about causation and the attribution of value in acts of production.
It’s worth bringing to light the foundations of the assumption that it is the state’s business to allocate or reallocate goods. Just as an airline or air traffic control system that rested on the theory that things seek out their “natural place” would be in serious trouble, a theory of justice that rested on faulty and outmoded theories of social cooperation and value would be in serious trouble.
After showing why the assumption that the state has the right to allocate assets (whether to achieve equality, the case under discussion here, or something else) is faulty, I’ll briefly suggest a justification for what Schmidtz seems to consider the commonsensical alternative, viz. that each person should be able to dispose of her own person and the wealth that is imputed to it through exchange.
The Cops Own Your Stuff
When egalitarian redistributors make an effort to justify the assumption that the state has the legitimate right to rearrange entitlements to achieve equality, it’s usually in the form of an invocation of the theory that all production is inextricably joint, that is, that all that you have (at least above the barest and meanest possible kind of brute existence) would be impossible without the farmers in the fields growing the crops that nourish you, the cop on the beat protecting you from thieves, and so on, and that none of the inputs into that process could be added or withdrawn. It’s the cop on the beat, i.e., the state, however, that gets the attention, since it’s assumed that the enforcement of claims to wealth and income is what accounts for the fact of your having wealth and income at all, and thus the state, as the sine qua non of that wealth and income, is entitled to dispose of all of it. Cass Sunstein makes his reliance on that theory explicit in his defense of redistributive programs, “In fact government is ‘implicated’ in everything people own.”  He admits that the state didn’t actually do all that hard work to create the stuff that people think they “own,” but insists that without the cop on the beat, none of the work would have been done:
If rich people have a great deal of money, it is because the government furnishes a system in which they are entitled to have and keep that money. Of course this is not to deny that many people work very hard for what they earn. But without government, people would face a free-for-all, a test of strength. Who knows what would emerge from that test?
From such little thought experiments Sunstein and others conclude that the state is entitled to dispose of what has been created.
Writers who rely on such thinking seem unaware that classical economics was updated by the marginal revolution. For them, Leon Walras, William Stanley Jevons, and Carl Menger never existed. Their economic theory of value is stuck at the level reached by Adam Smith and Karl Marx. A major project of classical economists was to attribute all value to that one factor of production without which value would not be possible. For many of the classical economists, it was labor. (For some others, it was only agricultural labor, since if you don’t eat, you can’t make anything else.) Sunstein simply substitutes the state for labor. But no serious thinker should make such a mistake. It’s as if modern astronomers were attempting to illuminate our understanding of the heavens by writing about the interaction of the celestial spheres. Value attribution is not about finding that one thing without which not and then attributing all value to it, as if there were no possibility of marginal incremental adjustments of any inputs. Serious social scientists understand that we act across a great many margins and that total value in all jointly produced goods is not attributed to one single necessary factor of production. We might say that farmers produce all value, since without food, none of the rest of us would produce anything else. And so on for other groups and factors of production. But that would be remarkably naïve and primitive.
John Rawls tries to move the discussion from the purely primitive level to one informed by bargaining theory by creating a pure bargaining game based on a problem of inextricable jointness, a condition that is indistinguishable from bargaining among parties to a bilateral monopoly.  In setting the framework for a bargaining situation that will establish the basic rules of society, Rawls assumes that all contributions are inextricable, for “the context of a social contract”
must allow for three facts, among others: namely, that membership in our society is given, that we cannot know what we would have been like had we not belonged to it (perhaps the thought itself lacks sense), and that society as a whole has no ends or ordering of ends in the way that associations and individuals do. The bearing of these facts is clear once we try to regard the social contract as an ordinary agreement and ask how deliberations leading up to it would proceed. Since membership in their society is given, there is no question of the parties comparing the attractions of other societies. Moreover, there is no way to identify someone’s potential contribution to society who is not yet a member of it; for this potentiality cannot be known and is, in any case, irrelevant to their present situation.
That approach infects all of his treatments of distributive justice, for Rawls assumes that all that you are, all that you do, all that you make, and all that you have is a result of a process of productive interaction that is inextricably joint and thus that there is no distributive principle that would allow one to invoke what might happen were one not a member of a joint enterprise, i.e., were one able to withdraw or add to one’s contributions. (Of course, that assumption is at war with Rawls’s invocation of incentives in the discussion of the difference principle, but let’s set that example of incoherence in his theory aside as only incidental to our concerns about equality here.) 
So, the theory behind the assumption that the state has the legitimate right to allocate all jointly produced resources rests on three deeper assumptions:
1. That all products are inextricably joint, i.e., that one cannot add to or subtract from one’s contributions;
2. That the one factor of production to which all value is to be attributed is the state (rather than farmers, physicians, optometrists, etc., etc.); and
3. That the factor of production to which value is attributed has a right to dispose of the full product. 
Remove those assumptions and the theory collapses. There is no good reason to assume that the state, which is certainly an input into the process of production (as well as a major cause of destruction and predation, as any even moderately diligent student of history should know), should have rights to dispose of the full product of all factors of production. Protection from criminals is certainly a factor in production, but so are many others, and the ability to add or withdraw one police officer (assuming that there were no vice squads, crooked cops, or other criminal activities among the police and that all added to valuable productive activities) tells us that the police, too, have a marginal product, just like the farmers, the optometrists, and the photographers.
A Property in One’s Own Person
But if a sophisticated theory of distributive justice should take into account the possibility of marginal contributions (one more or less unit of labor, one more or less bucket of sand, etc.), then it must presuppose that some agent, or group of agents, has the rightful power to dispose of those units. The best articulated theory is surely that which rests on the property each has in his or her own person–a theory that was advanced and articulated by various Spanish Scholastics, the Levellers, John Locke, and others who laid the foundations for classical liberalism.  That theory, in turn, rests on the concern for equal consideration that Peter Singer invokes, but without the assumption that the state is the legitimate agent for deciding how all the goods of the world are to be allocated. At base, one’s own talents, body, and time are not for others to allocate. That provides a remarkably robust foundation for the establishment of rights to other goods. The theory is incomplete without specifications of how we come legitimately to acquire rights over those goods, but there is an enormous body of positive law and of jurisprudence that fleshes it out in greater detail than could be done here. 
In short, Schmidtz’s closing question is a good candidate for the opening problem of a theory of justice. The theory underlying most–perhaps all–assumptions of the right of the state to allocate resources rests on a primitive and long since superceded theory of value. The liberal theory of the equal right of every person to exercise choice over his or her own person, in contrast, is both well grounded (i.e., one can articulate clear and plausible reasons for it) and a presupposition to any account of the complex distributional outcomes that emerge from the voluntary interaction of countless persons unknown to one another, that is, to the arrangements of assets that characterize a modern, cosmopolitan, great society.
 The Second Bill of Rights: FDR’s Unfinished Revolution and Why We Need it More than Ever, by Cass Sunstein (New York: Basic Books, 2004), p. 199.
 In a bilateral monopoly there is both only one seller (“monopoly”) and only one buyer (“monopsony”), meaning that only a range of prices could be theoretically established, i.e., between the lowest price that would be accepted by the seller and the highest price that would be paid by the buyer. Precisely where the actual price would fall between these two boundaries is purely a matter of bargaining. As Richard Posner notes, “When a monopolistic supplier of labor confronts a monopsonistic buyer of labor, the exact price and quantity that will be set depend upon the parties’ relative skills at bargaining, ability to use intimidation or bring political pressures to bear, and perhaps other factors.” Richard Posner, Economic Analysis of Law (Boston: Little, Brown and Company, 1972) p. 136.
 John Rawls, Political Liberalism (New York: Columbia University Press, 1993), pp. 275-276.
 If the idea of the margin is rejected as entirely inappropriate to the analysis of justice, perhaps because individual contributions to the “joint product” in question (the products of social cooperation) cannot in any way be identified, then the basis of the difference principle, Rawls’s rule to justify divergences from strict equality, is altogether obliterated. As Robert Nozick notes, “When it is necessary to provide incentives to some to perform their productive activities, there is no talk of a joint social product from which no individual’s contribution can be disentangled. If the product was all that inextricably joint, it couldn’t be known that the extra incentives were going to the crucial persons; and it couldn’t be known that the additional product produced by these now motivated people is greater than the expenditure to them in incentives.” Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974), p. 189. Knut Wicksell (“A New Principle of Justice Taxation,” in Richard A. Musgrave and Alan T. Peacock, eds., Classics in the Theory of Public Finance (2nd ed.; New York: St. Martin’s Press, 1994), similarly argued against Mill’s principles of distributive justice, for even when considering activities of the state (rather than all social activities, as Rawls does), “The discussion is almost always concerned with this or that change in the scope of the State’s operations, this or that extension or (much more rarely) contraction of the separate branches of public activity.” (p. 78) Wicksell defended the marginal principle against Mill’s claim that “Government must be regarded as so pre-eminently a concern of all, that to determine who are most interested in it is of no real importance,” i.e., that allocation of burdens on the basis of benefits is beside the point. (quoted by Wicksell on p. 78) An attempt to update the theory was made by G. A. Cohen in his Self-Ownership, Freedom, and Equality (Cambridge: Cambridge University Press, 1995). His case for equal distributions of jointly produced products rests on a simple error in his theory of bargaining, as I show in “G. A. Cohen on Self-Ownership, Property, and Equality,” Critical Review, 12, No. 3 (Summer 1998), available at http://www.tomgpalmer.com/papers/palmer-cohen-cr-v12n3.pdf. I deal with his student Michael Otsuka’s attempt to apply the theory in his work Libertarianism Without Inequality (Oxford: Oxford University Press, 2005) here: http://www.reason.com/0501/cr.tp.john.shtml.
 Anthony de Jasay refers to that as the theory that, since he guards you and your assets, “Your Dog Owns Your House.” http://www.econlib.org/library/Columns/Jasaydog.html
 I lay out the history of the approach and explore its implications in “Saving Rights Theory from its Friends” in Individual Rights Reconsidered: Are the Truths of the U.S. Declaration of Independence Lasting?, ed. by Tibor R. Machan (Stanford, Calif: Hoover Institution Press, 2001), available at http://www.tomgpalmer.com/papers/palmer-individualrightsreconsidered-chapter2.pdf.
 A good place to start is Richard Epstein’s Simple Rules for a Complex World (Cambridge, Mass.: Harvard University Press, 1995) and Randy Barnett’s The Structure of Liberty: Justice and the Rule of Law (New York: Oxford University Press, 1998.)