What We Mean by “Liberty” — and “Wealth”

Let me just make a few comments to the various objections that Liam Murphy has raised to the definitions of “liberty” in use in classical liberal theory. I do not think that the term “liberty” has the deep philosophical ambiguity that he attributes to it. A person does not become more free because he has more wealth; he becomes wealthier, which confers on him more opportunities to use the liberty that he has. Any system of wealth transfers from one person to another, moreover, cannot increase aggregate liberty, because if the transferees are made, by Murphy’s lights, better off, then the transferors are made worse off, so that we do not have the kind of social improvement that is derived, say, from voluntary contracts that typically produce gains to the parties and positive external effects as well.

The question therefore is whether we can justify the limitation on the classical liberal definition of liberty on the grounds that wealth transfers produce some kind of social improvement. That improvement cannot be found on a strong Paretian standard because of the losses to the parties from whom the transfers are made — an objection that cannot be made against voluntary gifts. The harder question is whether the case for transfers can be made on a Kaldor-Hicks standard whereby we think that the gains to the winners exceed the losses to the losers, such that in principle transfer payments could bridge the gaps. This is possible with changes that produce overall wealth increases, but is much harder to achieve with wealth transfers; even with the diminishing utility of wealth, we have to hand everything back to the loser to put that person back in the prior state of affairs.

The only way out of this problem is to assume that from some ex ante position there is a global insurance contract whereby everyone thinks that some protection against adverse states is better than no protection at all. Yet here too the obstacles are severe because we know that, in the real world, transfer payments are costly to administer; that they provoke partisan squabbles that produce political strife; and that they dull the incentives for production at both ends of the income scale. Another way to put the point is this: even if we thought that the diminishing marginal utility of wealth justified coercive transfers, the question we would have to ask is not whether $100 in the hands of the poor is worth more socially than $100 in the hands of the rich, assuming interpersonal comparisons of utility are permissible. Rather the question is whether $100 – X in the hands of the poor is worth $100 in the hands of the rich, and until we know X that is hard to answer. My own sense is that there is no categorical answer to this question, but that politically the transfers will move either in the wrong direction, or will be larger than is optimal. There is no categorical case against redistribution as a deviation from libertarian conceptions of liberty, but it is a hard row to hoe to find transfer systems that do work. The minimum wage is not one of them.

Also from this issue

Lead Essay

  • George Mason University’s Daniel Klein begins this month’s lead essay by presenting evidence from a poll of economists showing that more than half of those who are in favor of a minimum wage generally don’t think it is coercive, suggesting that judgments about what is coercive or voluntary underpin professional opinion about economic policy. If so, Klein asks, shouldn’t economists address the question of coercion more directly? Klein argues that we should treat non-coercion as a maxim to be followed “ninety-something percent of the time,” which allows for the legitimacy of coercion under certain conditions. Economists may then ask: “When should we endorse the liberty maxim and when not?” in a principled way. Klein draws on ideas from F.A. Hayek and Adam Smith to argue for the centrality of the distinction between voluntary and coercive action in the ordinary practice of economic inquiry, and to urge a renewed emphasis on the role of liberty in economic theory.

Response Essays

  • NYU philosopher and legal theorist Liam Murphy responds to Daniel Klein’s lead essay by questioning the relevance of the general concept of coercion to the defense of market institutions and disputing Klein’s particular characterization of coercion. Murphy observes that arguments in defense of markets generally appeal to pre-institutional rights or a conception of good consequences. In neither case does the idea of coercion play a key role. Further, Murphy suggests that Klein’s particular account of coercion is loaded with contestable moral baggage. But, Murphy writes, “The concept of coercion … is deeply indeterminate, with disagreement about correct usage tracking exactly the fault lines that have political significance; so there is simply no right answer to such questions as whether a labor contract for below a minimum wage, or its prohibition, is coercive.”

  • Harvard economist Edward Glaeser agrees with Dan Klein that economic regulations, such as minimum wage laws, are coercive, and that this ought to give us pause. “For millenia, governments have abused their control over the tools of violence,” Glaeser writes. “The historical track record insists that we treat any governmental intervention warily.” However, that does not rule out coercion. “The ultimate job of the state is to increase the range of options available to its citizens,” Glaeser maintains, and well-targeted coercion can increase total freedom in this sense. “Certainly, redistribution reduces the freedom of the taxpayer but it increases the options of the recipient of governmental largesse,” Glaeser says. He goes on to argue that laws that restrict the liberty to contract, such as the minimum wage, generally are not freedom-enhancing overall and tempt government abuse.

  • In his reply, University of Chicago law and economics guru Richard A. Epstein attempts to lay out an account of “justified coercion.” Taking the minimum wage as an example, Epstein sets forth and then rejects several grounds on which the minimum wage may be seen as non-coercive. He then sets forth and rejects several arguments that might justify the coercion in economic regulations such as the minimum wage. According to Espstein, state coercion in support of market institutions “is justified because it expands the envelope for gains from trade through voluntary exchange.” In general, coercion may be justified when “it is to the long-term advantage of all,” but detailed and systematic analysis of particular institutions — such as the one Epstein provides for the minimum wage — is required to establish when this is, and is not, the case.