Gavin Kerr’s new book shows that the movement for a Property-Owning Democracy has been searching for something the Geo-Liberal movement found long ago: a pre-distributive mechanism that can create a more equal society by changing individual starting points without all of the distortionary effects of more traditional re-distributive measures. Kerr shows how rent and resource taxes can do just that and argues eloquently that they are needed now more than ever.

Karl Widerquist, Georgetown University

Gavin Kerr’s book makes an outstanding contribution to the growing body of literature that challenges the conventionally assumed incompatibility of substantive egalitarianism with classical liberalism’s and libertarianism’s concern for individual liberty.

Hillel Steiner, University of Manchester and University of Arizona

The renewed attention to foundational issues concerning inequality in recent political philosophy is the starting point for Gavin Kerr’s scholarly and rigorous defense of the ‘geo-classical’ liberalism of Smith, Ricardo and Henry George. Kerr defends an asset-based egalitarianism that stabilizes a classic liberal account of justice by socializing the economic rent that accrues to land. Both classical and ‘high’ liberals will learn a great deal from Kerr’s persuasive and detailed argument for his innovative conclusions in a book that deserves to be widely read by political philosophers, economists and political scientists.

Alan Thomas, University of York

The Property-Owning Democracy

The ideas of ‘predistribution’ and the property-owning democracy have recently emerged as the central features of the progressive social liberal response to the problems of poverty, unemployment, economic insecurity, burgeoning socio-economic inequality, and economic instability, none of which the more familiar institutions of welfare state capitalism seem able to solve effectively. These social liberal proposals for institutional reform have, however, been rejected by ‘neo-classical’ liberals who have attempted to modernize and revitalize the traditional classical liberal case for a set of ‘market democratic’ laissez-faire institutions. The Property-Owning Democracy makes a fresh attempt to demarcate an area of common ground between the positions occupied by classical and social liberals by identifying a set of institutional arrangements to which both can agree, while at the same time recognizing that there will be many important issues about which liberal (and non-liberal) political and social thinkers will continue strongly to disagree.

Drawing on ideas and arguments identifiable within a particular branch of the left-libertarian tradition, the book develops market democratic interpretations of the ideas of predistribution and the property-owning democracy, and presents a powerful case for an institutional reform which constitutes a genuinely progressive alternative to more familiar social democratic institutions. By identifying progressive predistributive institutions as essential conditions, both for the effective protection of ‘market freedom’ and for the maximization of the substantive opportunities of the least advantaged members of society, the book shows how these institutions may be justified on grounds that both classical and social liberals may reasonably be expected to endorse.

Gavin Kerr is a researcher whose interests lie at the intersection of the fields of politics, philosophy, and economics. His work focuses in particular on the relationship between the classical and social liberal traditions, and on the ideas of market democracy and the property-owning democracy.

Routledge Studies in Social and Political Thought

For a full list of titles in this series, please visit www.routledge.com/series/RSSPT

117 Elementary Forms of Social Relations

Status, Power and Reference Groups

Theodore D. Kemper

118 Groundwork for the Practice of the Good Life

Politics and Ethics at the Intersection of North Atlantic and African Philosophy

Omedi Ochieng

119 Theories of the Stranger

Debates on Cosmopolitanism, Identity and Cross-Cultural Encounters

Vince Marotta

120 Planet Utopia

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Mark Featherstone

121 Deciphering Goffman

The Structure of His Sociological Theory Revisited

Ramón Vargas Maseda

122 The Property-Owning Democracy

Freedom and Capitalism in the Twenty-First Century

Gavin Kerr

123 Weber, Schumpeter and Modern Capitalism

Towards a General Theory

John Love

124 The Cultural Contradictions of Anti-Capitalism

The Liberal Spirit and the Making of Western Radicalism

Daniel Fletcher

125 Peter Berger on Modernization and Modernity

An Unvarnished Overview

Robert Bickel

126 Imaginaries of Modernity

Politics, Cultures, Tensions

John Rundell

127 Complexity, Society and Social Transactions

Developing a Comprehensive Social Theory

Thomas Whalen

The Property-Owning

Democracy

Freedom and Capitalism in the

Twenty-First Century

Gavin Kerr

First published 2017

by Routledge

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and by Routledge

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Library of Congress Cataloging in Publication Data

Names: Kerr, Gavin, author.

Title: The property-owning democracy : freedom and capitalism in

the twenty-first century / Gavin Kerr.

Description: New York, NY : Routledge, 2017. | Series: Routledge

studies in social and political thought

Identifiers: LCCN 2017004093 | ISBN 9781138245068 (hardback)

Subjects: LCSH: Property. | Equality. | Democracy–Economic aspects.

| Liberalism. | Capitalism.

Classification: LCC HB701 .K47 2017 | DDC 330.12/2–dc23

LC record available at https://lccn.loc.gov/2017004093

ISBN: 978-1-138-24506-8 (hbk)

ISBN: 978-1-315-27643-4 (ebk)

Typeset in Sabon

by Wearset Ltd, Boldon, Tyne and Wear

Contents

Acknowledgements

Introduction: Three Traditions of Liberal Political Thought

The Limitations of the Classical and Social Liberal Traditions

The Promise of Geo-Classical Liberalism

1 Classical Liberalism and the Idea of Market Freedom

Introduction

Isaiah Berlin: Negative Liberty and the Idea of Market Freedom

Friedrich Hayek: Private Property and Market Freedom

Milton Friedman: Capitalism and Orthodox Market Freedom

Richard Epstein: Orthodox Market Freedom Explicitly but Inadequately Defended

Conclusion

2 Social Liberalism and the Rejection of Market Freedom

Introduction

The ‘New Liberalism’

Social Liberalism and the De-Prioritization of Market Freedom

The Social Liberal Rejection of the Very Idea of ‘Market Freedom’

3 Geo-Libertarianism: The Prioritization of Unorthodox Market Freedom

Introduction

Classical Political Economy and the Idea of the Socialization of Rent

Geo-Libertarianism and Market Freedom

A Critical Assessment of the Geo-Classical Theory of Distribution

From Geo-Libertarianism to Geo-Liberalism

4 Justice as Fairness and the Priority of Substantive Opportunity

Introduction

Neo-Classical Liberalism, Economic Exceptionalism, and the Priority of Liberty

Growth, Opportunity, and Perfectionism

Constitutionalism, Indeterminacy, and Ideal Theory

5 Liberal Socialism and the Right to Private Property

Introduction

Liberal Socialism and the Right to Private Property

The Self-Limiting Character of the Right to Private Property

The Fragmentation of Property and the Idea of Quasi-Private Ownership

6 The Market Democratic Property-Owning Democracy

Introduction

Orthodox Laissez-Faire Capitalism versus the Market Democratic Property-Owning Democracy

Interventionist Alternatives to the Socialization of Rent

Money and Banking in a Market Democratic Society

Practical Implementation

Conclusion: The Socialization of Rent: An Idea Whose Time Has (Almost) Come?

Index

Acknowledgements

This book is the result of nearly ten years of research and reflection. During this time I have received the invaluable help and assistance of a large number of supervisors, examiners, friends, colleagues, and acquaintances without whom the book would have been impossible to write, and for which I am extremely grateful. I would like in particular to thank Cillian McBride, Shane O’Neill, Keith Breen, and Stuart White for their many extremely helpful criticisms and constructive feedback, particularly in relation to the earlier phase of the project. I must also thank Fabian Schuppert, Philip O’Hanlon, and Ben Joicey for their participation in the many interesting discussions we had during that time.

I have also benefitted greatly from the many conversations on the subject of land value taxation I have had with a number of friends during the past five years or so (some of whom may not have been quite as appreciative of our discussions as I usually was!). Many thanks, then, to Stephen Riley, Tom Davidson, Nick Davidson, Stephen Parsons, Joshua Vanner, Roddy Glasse, Steve Riley, Levina Feldt, and Gareth Whelan. I would also like to express my gratitude to the Trustees of the Henry George Foundation for supporting me financially during the final year of the writing of the book. Finally, I would like to thank my father, Michael Kerr, without whose tireless search for truth and justice the book would never have been written.

Introduction

Three Traditions of Liberal Political Thought

The Limitations of the Classical and Social Liberal Traditions

There are perhaps few things more astonishing than the extraordinary material progress that has been experienced by the citizens of liberal societies since the emergence of liberalism in the late seventeenth and early eighteenth centuries. Capitalism, emerging in conjunction with the development of liberalism in the eighteenth century, appears to have unleashed an immensely powerful creative force which is becoming ever stronger and more dynamic. But while the pace of technological innovation and development, along with the social transformation that inevitably accompanies such change, is now greater than ever, the incredible dynamism of capitalist societies is no less turbulent and unstable than it was in the eighteenth and nineteenth centuries, with periods of relatively stable growth punctuated regularly by often severe and socially destructive slumps and crashes. And while capitalist societies grow richer and richer as methods of production and exchange become more and more advanced, a significant proportion of the citizens of these societies continues to be afflicted by various forms of social and material deprivation and poverty, the extraordinary persistence of which is surely one of the few things that is even more astonishing than the incredible material progress with which it seems inexplicably and inextricably to be entwined.

The classical and social traditions of liberal political thought – the two branches into which the liberal tradition began to divide from around the middle of the nineteenth century – embody radically contrasting interpretations of the historical record of the effectiveness of capitalist institutions in relieving poverty and enhancing the opportunities of the citizens of liberal societies. Classical liberals emphasize the apparently enormous improvements in opportunities and standards of living enjoyed by even the least advantaged members of these societies since the nineteenth century, and see the strong protection of the rights of private ownership and freedom of contract that characterize the capitalist mode of production as essential to the continued amelioration of poverty both within and between these societies. Social liberals, by contrast, emphasize the persistence of widespread poverty and inequality despite the extraordinary growth achieved since the nineteenth century, and see the excessively strong protection of rights of private ownership and freedom of contract as the central cause of the continued existence of poverty amidst plenty. These contrasting evaluations of the performance of the capitalist mode of production correspond to the radically contrasting programmes for institutional reform that have been proposed by classical and social liberals in recent years, as expressed by the ideas of ‘market democracy’ and the ‘property-owning democracy’.

Social Liberalism and the Property-Owning Democracy

Since the publication of John Rawls’s A Theory of Justice in 1971, modern social liberalism, with its emphasis on substantive opportunity and equality, in addition to the traditional classical liberal concern with personal liberty and formal political equality, has been the dominant tradition of liberal political thought within the liberal academic community (Nagel, 2003; Freeman, 2011). Enormous amounts of time and energy have been invested in addressing questions concerning the extent of the inequalities that are permissible in a society that satisfies the demands of political and social justice, the nature of the goods the distribution of which is at issue, and the character of the institutional arrangements that would most effectively realize the appropriate distribution of these goods. The dominance in the academy of egalitarian liberalism has therefore generated, among other things, an explosion of interest in questions concerning the structure and organization of ideal liberal, socio-economic institutional models, which, it is hoped, might provide guidance for the reform of basic social and economic institutions within (and between) actual liberal democratic societies.

This interest in the institutional implications of liberal principles of political and social justice has resulted in the development of a radical social democratic reinterpretation of the idea of the ‘property-owning democracy’, an idea associated in popular non-academic culture (at least in the United Kingdom) with home-ownership and the privatization of social housing initiated by the Conservative government of the 1980s. The social liberal interpretation of the property-owning democracy (POD) focuses more broadly on the importance of a wider and much more radically egalitarian distribution of privately owned capital and productive property for the full realization of the values of liberty, equality, and social justice (Freeman, 2007; Krouse and McPherson, 1988; Meade, 1964; O’Neill and Williamson, 2012b; Rawls, 1999 [1971], 2001; Thomas, 2016). The implication of Rawls’s highly influential theory of justice, and of the idea of the POD that has developed out of it, is that if the modern industrialized societies of Europe and North America are to become truly worthy of their self-proclaimed status of free, liberal democratic societies, then the basic social and economic institutions of these societies must be radically reformed. Tax and welfare systems in particular, and social and political institutions in general, must be redesigned and their objectives redefined in order to facilitate the more egalitarian distribution of material resources and benefits demanded by the principles of political and social justice, and the values of liberty and equality.

Social liberal political thinkers influenced by and sympathetic to Rawls’s work argue that such reforms are essential partly because the dominance of ‘high’ social liberalism in the academy has not been reflected in the actual political experience and institutional development of liberal societies, particularly the United States and the United Kingdom. On this view, neo-liberal-inspired reforms of tax, welfare, and regulatory systems carried out since the late 1970s have generated soaring socio-economic inequality, with the result that there now exists a substantial and increasingly anxious, economically insecure, and highly indebted, ‘squeezed middle’ class whose earnings have stagnated for a decade or more, as well as an underclass of ‘citizens’ for whom the supposedly well-protected legal, civil and political liberties to which they have ‘inalienable rights’ are of little actual worth, their value undermined by poverty and social deprivation, enforced idleness, high crime rates, inadequate education and training, and poor health (Atkinson, 2015; Hacker, 2006; Hacker and Pierson, 2011; O’Neill and Williamson, 2012b; Picketty, 2014; Standing, 2011; Stiglitz, 2013; Thomas, 2016). It is argued, moreover, that the political and legal systems of so-called liberal democratic societies are increasingly dominated by powerful economic interests, so that equality before the law is undermined, and the democratic participation in politics on which these societies pride themselves often appears no more than a sham (Stiglitz, 2013; Thomas, 2016).

It has been suggested that this preoccupation with questions concerning the precise specification of the principles of justice that are to determine the structure of the basic social and economic institutions of an ideal society has failed to identify and rectify basic cases of injustice, particularly in the context of the developing world, but also in that of fully industrialized liberal societies (Sen, 2010). Whatever the fairness or validity of this charge, it certainly seems reasonable to suggest that while progressive liberal political thought, influenced and enriched by socialist ideas and arguments, may have had a strong impact on the development and reform of socio-economic institutions in the early twentieth century and in the aftermath of the Second World War, the practical influence of modern social liberal theory has declined since the late 1970s, and certainly has not as yet had any appreciable influence on the process of institutional reform precipitated (or at least necessitated) by the economic crises of 2007–2010. In the post-Thatcher/Reagan, post-financial crisis times of the current decade, political discourse and decision-making in the liberal democratic world are dominated by the widespread (though certainly not universal) acceptance of the ‘politics of austerity’, and the increasingly strident rejection of traditional social democratic redistributive and regulatory intervention in the ‘free market’ economic process.

It is in this context that interest in the idea of the POD has been increasing among social liberals, particularly during the last decade. The model of the POD is seen as providing the basis for a new progressive approach to social and economic reform that constitutes, not necessarily an alternative, but certainly an essential supplement to the traditional social democratic redistributive tax-and-transfer approach that has hitherto provided the basis for progressive social liberal thinking (Meade, 1964; O’Neill and Williamson, 2012b; Rawls, 1999 [1971], 2001). Rather than relying too heavily on the use of progressive redistributive taxation to provide welfare services and benefits and to achieve a redistribution of income and wealth from rich to poor, the POD utilizes what have been called ‘predistributive’ mechanisms, which aim to secure a fairer initial distribution of property endowments (including endowments of human capital) with which citizens can engage in mutually advantageous economic activity within a free market system that generates prosperity for all, thereby reducing (though not eliminating) the need for subsequent redistributive taxation (Hacker, 2011; Hacker and Pierson, 2011; O’Neill and Williamson, 2012a; Thomas, 2016). Among the proposed core predistributive features of the POD are the public provision (or at least funding) of top quality education, training, and ongoing skills development for all citizens, the encouragement of strong trade-unions as a means to increase wages and improve job security, the specification of higher minimum wage rates so that all citizens have the opportunity to earn at least a ‘living wage’, the use of German-style ‘co-determination’ arrangements to ensure that large corporations pay decent wages to their workers, and the imposition of high rates of inheritance tax to break up large concentrations of unearned wealth and improve access to productive capital for the least advantaged members of society (Gregg, 2012; O’Neill and Williamson, 2012a; Plunkett, 2012; Ussher, 2012).

Neo-Classical Liberalism and the Idea of Market Democracy

But although the social justice liberalism of Rawls and his followers has been the dominant force within the academic community for the last 30 or 40 years, the proponents of classical liberal limited government and laissez-faire institutions have not been silent, and are now gaining in confidence as their ideas and arguments continue to shape policy in liberal societies around the world. Classical liberals have always regarded the idea of social justice with suspicion, or even outright hostility, arguing that the exercise of state power and control to restrict or eliminate socio-economic inequality must be strongly curtailed since it undermines economic efficiency and productivity, and poses a serious threat to the rights of citizens to engage freely in economic activity (Epstein, 1985; Friedman, 1962; Hayek, 1960, 1982 [1973]; Nozick, 1974). More recently, however, the social liberal ideas of democratic legitimacy and social justice have themselves formed the basis of a ‘neo-classical’ liberal critique, both of the general, social democratic interventionist approach, and of the more specific, currently emerging, POD institutional model (Brennan, 2007; Brennan and Tomasi, 2012; Gaus, 2010; Schmidtz, 2006; Tomasi, 2012). John Tomasi (2012) has presented a radical non-utilitarian ‘market democratic’ conception of political justice which, in his view, justifies a set of predominantly market-based social and economic institutions, in contrast to the interventionist institutions favoured by the social liberals. In developing his ‘free market fairness’ conception of political justice, Tomasi seeks to combine the values of capitalism and ‘private economic liberty’ with those of social justice and democracy by showing how the moral conception of free and equal citizenship demands a commitment to a set of strong private economic rights and liberties, and by demonstrating that the free market system that would best protect these rights and liberties is just and fair to all members of society, including the least advantaged.

Tomasi and other neo-classical liberal thinkers therefore see the problems faced by the citizens of modern liberal societies in a different light from that in which the social liberals see them, and propose correspondingly different solutions. Poverty, unemployment, economic instability, and political inequality are indeed acknowledged by neo-classical liberals as being serious problems in economically advanced liberal societies, but the solutions to these problems are seen to lie in the continuation of the classical liberal-inspired low tax and small government policies adopted in the UK and the USA since the early 1980s, rather than in a return to traditional social democratic progressive, redistributive tax-and-transfer policies, or in the inherently risky adoption of the interventionist state-centred POD approach (Brennan and Tomasi, 2012). What neo-classical liberals advocate, then, is a return to what they see as the purer and less heavily restricted form of capitalism that flourished in Britain and America in the late nineteenth and early twentieth centuries, which, in their view, would improve economic efficiency and productivity, generating higher rates of economic growth and prosperity for all members of society, including the least advantaged. At the same time, so the neo-classical liberals argue, the removal from the political agenda of highly contentious economic issues would both insulate politics from highly concentrated economic power and protect the economic sphere from unjustifiable political interference (Tomasi, 2012, pp. 247–254).

From the neo-classical liberal perspective, the so-called ‘predistributive’ institutional mechanisms of the POD are no less interventionist and destructive of economic liberty and prosperity than the traditional redistributive institutions of the social democratic welfare state: powerful labour unions and high minimum wage rates will be likely to deliver, not the high wage economy promised by the proponents of the POD, but only temporarily high wages for a small number of workers, followed by higher rates of unemployment and, in the long run, lower wages and lower standards of living for all; and high rates of inheritance taxation or other kinds of progressive taxation will deliver, not the improved opportunities for less advantaged members of society promised by the social liberals, but the mal-investment and destruction of capital, the violation of the economic liberty of citizens to dispose of their property as they see fit, the subsequent disincentivization of wealth creation and capital formation, and all the economic inefficiency and stagnation that these effects will inevitably generate. On this view, both the redistributive social democratic welfare state and the predistributive POD would result in heavier state intervention in the operation of the free market economic process than the level of intervention that currently occurs, even in the already relatively heavily restricted, mixed economies of contemporary liberal democratic societies, deepening and intensifying the problems of poverty and unemployment, rather than solving and mitigating them. The neo-classical liberals therefore endorse ‘market democratic’ laissez-faire and limited government institutional models as representing clear and attractive alternatives to the social democratic welfare state and POD approaches, as well as providing the theoretical basis for the reform of existing social and economic institutions in liberal democratic societies (Brennan, 2007; Gaus, 2010, Tomasi, 2012).

In presenting his market democratic conception of political and social justice, Tomasi seeks to straddle the divide between the social liberals and their classical liberal opponents, and to initiate an ongoing research programme which, he hopes, will generate a proliferation of market democratic conceptions of political justice, as well as further exploration, by open-minded social liberals as well as classical liberals, of the institutional arrangements that would allow the most effective realization of the principles of these conceptions of justice. The possibility of such an ongoing research programme arises from the flexibility inherent in a broadly defined market democratic framework, which leaves room for interpretation and disagreement about such things as the precise content of the basic economic liberties, the strength of the priority assigned to these liberties, and the practical advantages and disadvantages of different institutional approaches (Tomasi, 2012, pp. 172–173). Tomasi encourages political theorists and philosophers to seek different ways of combining the apparent ‘un-combinables’ of private economic freedom and social justice, and

to consider whether any, or all, of the existing (leftist) conceptions of social justice might be adjusted so as to recognize a wide array of private economic freedoms as basic rights and to adopt principles of spontaneous order in pursuit of their various distributional goals.

(ibid., p. xxi)

In this book I would like to answer Tomasi’s call to challenge ‘the political prescriptions of left liberalism’, and at the same time to challenge the political prescriptions of right liberalism, by making what I hope will be an important contribution both to the development of the market democratic approach proposed by Tomasi, and to the emerging literature on the ideas of predistribution and the POD. With regard to the political prescriptions of right liberalism, I shall argue that, although the neo-classical liberals are right to criticize the social democratic welfare state and POD approaches, their criticisms of these approaches are overblown and badly formulated, the ideas of market freedom and ‘private economic liberty’ to which they appeal are over-simplistic and internally inconsistent, and the laissez-faire institutional models, for which these ideas provide the theoretical foundations, are inappropriate for modern liberal societies. I shall, therefore, suggest that to the extent that classical liberal ideas and arguments continue to shape the institutional arrangements of liberal societies, the majority of the citizens of these societies will become even more impoverished and even less free than they already are. If classical liberalism is to become capable of effectively challenging the dominance of social liberalism in the academic community, then as well as recognizing the limitations of their criticisms of social liberal ideas and arguments, classical liberals must recognize the limitations of their interpretations of the ideas of market freedom and private economic liberty, reformulate these ideas accordingly, and propose institutional reforms that match these reformulated ideas and arguments.

With regard to the political prescriptions of left liberalism, I shall argue that although Rawls and those influenced by him are right to oppose the prescriptions of classical liberalism and to seek to identify alternative progressive institutions to those of the traditional social democratic welfare state, the ideas of predistribution and the POD, as they have thus far been developed, do not provide the basis for the institutional reforms that must supplement, and even to a certain extent replace, the interventionist, redistributive and regulatory mechanisms of the welfare state. Social justice liberals, I shall argue, tend to adopt one or the other of two unhelpful positions with regard to the classical liberal (mis)interpretation of the idea of individual economic liberty: either they accept these interpretations relatively unquestioningly, and then endorse restrictions of ‘economic liberty’ on the basis that such interventions in the ‘free market’ are necessary in order to reduce the degree of socio-economic inequality or to enhance the substantive opportunities of the less advantaged members of society; or they entirely reject the very idea of a ‘free market’ in which redistributive and regulatory institutional mechanisms can intervene, and attempt to justify these redistributive and regulatory mechanisms in terms that make no reference to any ideas of market freedom or private economic liberty.

I would like to challenge the political prescriptions of left-liberalism principally by arguing that neither of these approaches provides the basis for a successful critique of classical liberal theory and practice. I shall argue that it is plausible to suggest that to the extent that social liberalism, as it is currently expressed, succeeds in displacing classical liberalism as the dominant force in the shaping of the social and economic institutions of modern liberal societies, many of the citizens of these societies will remain impoverished and oppressed, since the interventionist mechanisms endorsed by social liberals do not offer effective solutions to the problems generated by orthodox laissez-faire institutions. If social liberalism is to be capable of effectively challenging the dominance of classical liberal ideas and arguments in shaping the social and economic institutions of contemporary liberal societies, then social liberals must challenge the orthodox classical liberal interpretation of the idea of market freedom and must propose institutional reforms that match a more defensible interpretation of this idea.

What I shall be arguing, therefore, is that neither the social liberal approach nor the neo-classical approach, which has arisen in response to the perceived failure of social liberalism, are capable of providing effective solutions to the problems of poverty, inequality, underemployment, increasing political inequality, and economic instability that now seem to be permanent features of contemporary liberal societies. Prior to the emergence of the ideas of predistribution and the POD (and, to a lesser extent, of free market fairness and market democracy), liberal political theory could be said to have reached an impasse, hopelessly locked in a sterile dispute between the supporters of so-called ‘free market’ capitalism, and the regulation and redistribution enthusiasts, who oppose ‘free market’ institutions in favour of interventionist, state-centred, institutional mechanisms. Although with the emergence of these new ideas the disagreements between the classical and social liberals are nothing like as sterile as they once were, neither the development of the ideas of predistribution and the POD nor the recent emergence of the neo-classical critique of social liberalism have as yet offered enough to break the deadlock between these two schools of thought, and both will continue to be unsuccessful in this regard without some significant additional theoretical input.

The Promise of Geo-Classical Liberalism

What kind of theoretical input might enrich the conversation between the classical and social liberals, providing the basis for progressive institutional reforms which can reasonably be expected to generate a fairer and less inequitable distribution of income and wealth, without at the same time undermining market freedom and economic efficiency? In addressing this question, I shall draw on and present a detailed examination of another branch of the liberal tradition, which I shall call ‘geo-classical liberalism’. The geo-classical tradition has its roots in the classical political economy of the late eighteenth and early nineteenth centuries, most notably in the work of Adam Smith (1904) [1776]) and David Ricardo (1821 [1817]), and achieved its most widespread and popular appeal in the late nineteenth century in the work of the American journalist, political economist, and social critic, Henry George. In Progress and Poverty, published in 1879, George attempted to demonstrate that the institution of full private property in land was incompatible with both liberty and economic efficiency, and was largely responsible for the coexistence in liberal industrializing societies of extraordinary prosperity and wealth, on the one hand, and extreme poverty and deprivation, on the other.

Central to George’s explanation of the existence of dire poverty amidst incredible riches following a century of extraordinary progress, were the ideas of the ‘law of rent’, formulated by Ricardo in the early nineteenth century, and the taxation of the rental value of land, endorsed, at least partially, by Smith (1904 [1776], Ch. V), Ricardo (1821 [1817], Ch. X) and John Stuart Mill (1909 [1848], Ch. II). George argued that in a society in which land is fully privately owned, with rent privately appropriated rather than socialized, both wages (the reward for labour) and interest (the reward for capital investment) would be much lower than they would be in a society in which the rent payable for valuable land was socialized for public revenue, rather than appropriated by private landowners at the expense of the rest of society (George, 1920 [1879], Books V, VI). By socializing the rent of land, George reasoned, the taxation of labour and capital could be eliminated, and land could be utilized much more productively and efficiently. Wages and interest would then increase significantly, since both the size of the economic product available for distribution among the factors of production, and the proportion of the economic product going to labour and capital, would increase, as a result of more efficient land use and the elimination of taxation imposed on labour and capital (ibid., Bk VIII). With higher wages and higher interest, workers and capitalists would be appropriately rewarded for their contributions to the economic process of wealth creation, and would no longer be compelled to hand over a large proportion of their earnings to a relatively small number of landowners, who had themselves made no productive contribution and created no wealth. George also claimed that since the rental value of land is socially rather than privately created, this value may properly be identified as public rather than private property, and its socialization may be said to be politically just as well as socially expedient (ibid., Bk VII).

George’s theory was elegantly and powerfully expressed, and became hugely influential in the first two decades of the twentieth century, shaping the development of the policy of the Liberal Party in Britain (culminating in the ‘People’s Budget’ of 1909), and providing the driving force behind the ‘Progressive Era’ in America. At that time George’s arguments were vociferously and ruthlessly (and some (Gaffney and Harrison, 2006 [1994]) would say unfairly) criticized, ridiculed, and rejected by a number of neo-classical economists, in particular, J. B. Clark (1888; 1899), and E. R. A. Seligman (1895). Ever since, his ideas, and the general geo-classical liberal approach, have not received the attention they deserve from classical and social liberal political thinkers. However, although neoclassical economics has succeeded in marginalizing George’s ideas and arguments, insulating (and thereby impoverishing) the mainstream of the liberal tradition from their theoretical insights and institutional implications, a number of geo-classical, liberal political and economic thinkers have engaged with the neo-classical critique of George’s theory and have given his ideas and arguments a fair hearing, discarding those that do not stand up to careful and thorough scrutiny, and revising and modernizing those that do (Andelson, 1979; Feder, 1996; Foldvary, 1998; 2006; Gaffney, 1994; 2009; 2013; Hodgkinson, 2008; Tideman, 2004; 2015). As I shall endeavour to show in the chapters that follow, these revisions and restatements provide the basis for a radical critique of mainstream liberal political theory and practice.

The Market Democratic Property-Owning Democracy

The central thesis of the book is that the ideas of economic rent and land value taxation provide the theoretical basis for an unorthodox, market democratic, institutional model which is radically different from anything that has been generated by classical liberal theory, incorporating a genuinely ‘predistributive’ approach to progressive institutional design, and constituting a version of the POD that provides a genuinely progressive alternative to (at least certain aspects of) the traditional social democratic welfare state. The book presents, assesses, and (tentatively) endorses a range of arguments that support the following claims: that the citizens of a society in which at least a substantial proportion of public revenue is generated by the socialization of rent would enjoy more extensive and effectively protected rights of private ownership than those typically enjoyed by the citizens of contemporary liberal societies; that such a society would be likely to be economically more efficient and, subject to one important caveat (see next claim), more productive than contemporary liberal societies; that the citizens of such a society, including the least advantaged, would enjoy a higher degree of material independence and enhanced substantive opportunities to determine the shape and character of their economic activities, including the amount of time and energy spent engaging in productive economic activity; that the distribution of privately owned income and wealth, including capital and productive resources, would be much broader and more diffuse than the narrow, highly concentrated distributions that characterize contemporary liberal societies; and, finally, that such a society would be better in all of these respects than any orthodox, market democratic, laissez-faire society, or any social democratic welfare state or property-owning democracy.

If these arguments are successful, and the claims that they support justified, then the market democratic version of the POD proposed in this book will allow a much deeper and more genuine (though still only partial) reconciliation of the values of market freedom and capitalism with those of social justice and democracy than that allowed by orthodox market and social democratic institutional models. Such a reconciliation is made possible by a radical re-evaluation and reinterpretation of the idea of the right to private property, and of the form of freedom – which I shall refer to as ‘market freedom’ – that is secured through the strong and effective protection of this right. I argue in Chapter 2 that when classical and social liberals disagree about the prioritization of market freedom, the central area of disagreement between them concerns the specification of the level of protection that should be assigned to formal rights of private ownership, with social liberals typically arguing that the principles of social and political justice are likely to demand much stronger restrictions of these rights than the restrictions typically endorsed by classical liberals. What social liberals have not adequately considered, however, is the orthodox classical liberal specification of the conditions to which the legal protection of rights of private ownership is to be subject. As I explain in Chapter 5, rights of private ownership may be said to be minimally conditional when they are legally protected, subject to private owners satisfying the (relatively) weak condition that in acquiring their property and exercising their rights in respect of it, they have not violated any legal prohibitions or requirements, including requirements to pay any taxes for which they are liable.

Of course, the prioritization of market freedom is incompatible with the imposition of anything more than a relatively low rate of taxation, and certainly with the imposition of high rates of progressive taxation. But, as I argue in Chapter 2, even the absolute prioritization of market freedom could be said to require the imposition of a minimal amount of taxation – a condition in the absence of which rights of private ownership could not be effectively protected.[1] The point I would like to emphasize here, however, is that whatever degree of priority (if any) is assigned to orthodox market freedom, its protection is not subject to any conditions other than those just specified, these conditions applying equally in respect of any form of property.

As we will see in Chapter 3, however, there is another, less orthodox conception of market freedom, identifiable within the left-libertarian tradition of political thought, one of the core distinctive features of which is a division of rights of private ownership into two distinct kinds: first, minimally conditional rights of private ownership, which apply in respect of what I call ‘privately created property’; and, second, strongly conditional rights of private ownership, which apply in respect of property that is not created by applications of labour and capital, namely, land. Strongly conditional rights of private ownership which apply in respect of land are protected subject to the specific (relatively strong) condition that the private owners of holdings of such property incur and meet a tax liability which is equal to the rental value of the holdings that they own.[2] The other core distinctive feature of this less orthodox conception of market freedom is a recognition of the importance of the protection of citizens’ rights of public ownership, which apply in respect of the rental value of land, and which are also protected by making the private ownership of land strongly rather than weakly conditional, thereby securing the socialization of its rental value.

It is important to note that making the protection of rights of private ownership in respect of land strongly conditional in this way is not the same thing as narrowing the range of forms of property which can be privately owned: although the rights of private ownership which apply in respect of land are strongly conditional, they are nevertheless the same rights of use, possession, and transfer that apply in respect of privately created property. Thus, the protection of unorthodox market freedom is incompatible with the nationalization or socialization of land: only the rental value of holdings of land is socialized, this being the condition which must be met if the rights of private use, possession, and alienation in respect of these holdings are to be granted full and effective legal protection. Note also that, on this unorthodox view, the conditions to which the protection of rights of private ownership in respect of privately created property is subject are even more minimal than those specified by the orthodox view: on the unorthodox conception, once the strong condition which applies in respect of land has been satisfied, the minimal condition which applies in respect of privately created property does not include any kind of additional tax burden.

Although it is important to emphasize that strongly conditional rights of private ownership which apply in respect of holdings of land are genuine rights of private ownership, it is also important to recognize that (in certain circumstances[3]) such rights give private landowners significantly less control over their property than the level of control that minimally conditional rights of private ownership would give them. However, I argue in Chapters 5 and 6 that if the strongly conditional private ownership of land is not distinguished from the minimally conditional private ownership of privately created property, then the private creation of the latter will be unnecessarily and unjustly restricted, and the distribution of all forms of property will be unnecessarily and unjustly inequitable and highly concentrated. Since the socialization of publicly created rent results in the production of a larger amount of privately created property, which is more broadly distributed and less heavily taxed, the right to private property in general is more effectively protected in a market democratic POD than in any other kind of society, even though the private ownership of land itself is strongly conditional. Thus, one cannot be fully committed to the prioritization of market freedom if one endorses the minimally conditional protection of rights of private ownership in respect of land, since this would leave rights of private ownership in respect of privately created property, including the right to create such property in the first place, inadequately protected.

The unorthodox conception of market freedom developed in this book therefore allows for, or rather requires, a reinterpretation of the idea of the ‘free market distribution’ of property, which classical liberals often invoke when attempting to justify highly unequal distributions, and which social liberals object to, or even entirely reject, when calling for less unequal distributions. On the unorthodox view outlined in the previous three paragraphs, the idea of a ‘free market distribution’ of property may be identified (very roughly at this stage) as the distribution of land in accordance with payments of rent, and the distribution of privately created property in accordance with private productive contributions to the creation of such property. As we will see in Chapter 2, it is important to note that privately created property may be distributed in accordance with ‘productive contribution’, even if those who have created, and who therefore own large amounts of such property cannot be said to have ‘deserved’ to have done so (perhaps because they have been unusually lucky rather than hardworking or entrepreneurial), and even if they have subsequently transferred much of what they have created to someone else, who consequently owns a large amount of such property without having himself made any productive contribution to its creation. Thus, the actual distribution of privately created property may be said to correspond to the free market distribution, even if large holdings of such property are held by people who have not made any productive contributions to the creation of this property, but who have received gifts or bequests from those who have made productive contributions to its creation.[4]

On this view, the private appropriation of socially created rent generates actual distributions of privately created property which depart significantly from the free market distribution, bearing very little relation to the productive contributions made by the members of society. It is the effect of the socialization of rent in bringing actual distributions of privately created property back into line with the free market distribution that makes this institutional feature so progressive, and at the same time so much more conducive to efficient positive-sum economic exchanges than other ‘progressive’ institutions. With inequalities in the distribution of privately created property much more closely reflecting inequalities in productive contributions to its creation, both inefficiency in the production of wealth and inequality in its distribution would be significantly reduced, since those who would otherwise have been in a position to benefit from the efforts of others simply by releasing land for a fee – providing no productive contribution to the wealth-creation process – would be prevented from systematically free-riding on the productive contributions of others.

It is of course true that the actual distribution of property and wealth will never precisely reflect, and even if rent is socialized may still depart significantly from, the productive contributions that determine the free market distribution of these goods. Since there can never be an entirely or purely ‘free market’ economic process with perfect competition and no monopolies, cartels, and other market-distorting phenomena, it will never be possible to determine how closely the actual distribution of property and wealth resembles what would be a hypothetical purely ‘free market distribution’. As I argue in Chapter 2, however, it does not follow from this that institutional reforms which might make market returns and productive contributions more closely aligned cannot be identified and implemented. Even if the best that can be hoped for is the minimization of the most obvious and damaging forms of market imperfections and distortions, the socialization of rent is the single most important reform for achieving this objective, or so I shall argue.

This central institutional feature of the market democratic POD contrasts starkly with traditional interventionist, redistributive and regulatory mechanisms, which are considered by social liberals to be progressive to the extent that they force actual distributions of property and wealth away from unjust and highly inequitable ‘free market distributions’, or away from what they see as some entirely arbitrary distribution erroneously identified by classical liberals as being the ‘free market distribution’. The geo-classical liberal critique of orthodox market freedom is therefore radically different from the social liberal critique of classical liberal political thought, which has focused on marginalizing and de-prioritizing orthodox market freedom, rather than on developing a more defensible interpretation of this form of freedom and its institutional implications. I argue in Chapter 6 that over-reliance on the implementation of interventionist redistributive and regulatory mechanisms that restrict market freedom is likely to diminish rather than enhance the substantive opportunities of the least advantaged members of liberal societies.

Additional Features of the Market Democratic POD

It is perhaps important at this stage to highlight some other features of the market democratic POD which, though secondary to the core feature of the socialization of rent, are nevertheless essential features of any genuinely market democratic institutional model, sharply distinguishing it from more orthodox laissez-faire and limited government models. The most important of these features is the implementation of measures designed to ensure that the monetary and financial systems of a liberal society operate in the interests of all members of the society, facilitating efficient and productive economic activity rather than generating large monopolistic ‘something-for-nothing’ gains for those who obtain the right to create money by extending credit. A huge range of such measures have been proposed in recent years (Greco, 2009; Hayek, 2007 [1976]; Huber and Robertson, 2000; Kotlikoff, 2001; Robertson, 2012; Selgin, 1996; White, 1999), and it remains unclear which particular reforms would be the most progressive and the most likely to enhance market freedom. It is partly for this reason that although the implementation of such measures is indeed an essential feature of the market democratic POD, the primary focus in this book is on the socialization of rent as the core institutional feature of this form of socio-economic organization. As I explain in Chapter 6, however, another reason for this focus is the higher degree of importance which may plausibly be attached to the socialization of rent, in the absence of which financial and monetary reform would be likely to be largely ineffective in enhancing either the protection of market freedom or the pursuit of social justice.

Another important distinguishing feature of the market democratic POD is the proper legal construction and control of corporations. It is obviously important to ensure that the legislation that regulates the governance and control of corporations creates corporate entities which are economically productive, efficient, and stable, generating wealth for their owners rather than monopoly rents for a small number of extremely powerful high-level managers. Since the subject of corporate governance overlaps to a certain extent with the broader set of issues relating to workplace democracy, a wide range of proposals for the reform of the legal construction and regulation of corporate entities has been made in recent years (Alperovitz, 2012; Hussain, 2012; Malleson, 2014; Stiglitz, 2013; Williamson, 2012), and it is again not yet clear which of these are most consistent with the protection of market freedom. Since the socialization of rent is, in my opinion, by far the most important progressive market democratic institution, I shall not provide a detailed discussion of the issue of corporate governance in general, but only of the particular proposals for ‘workplace democracy’ that arise in the context of the question of the suitability of ‘liberal socialism’ as an institutional model for a liberal society (Cohen, 1989; Hsieh, 2008; Miller, 1989; Roemer, 1994; Schweikart, 2002; 2012).

The Market Democratic POD as Necessary, Though Not Necessarily Sufficient

Another thing which I would like to make clear at this early stage is that although the book identifies the socialization of rent as the core non-interventionist progressive feature of the market democratic POD, this feature may also form part of a generally social democratic institutional approach which incorporates a range of interventionist mechanisms that impose significant restrictions on market freedom. The focus in the book on ideal-typical market and social democratic institutional models is important because it allows clear and sharp contrasts and comparisons to be made between different theoretical viewpoints, which incorporate specific value commitments and specific sets of empirical assumptions and suppositions. But the basic social and economic institutions of actually existing liberal societies, of course, do not correspond to any formal institutional model, and the governments and citizens of these societies may choose to implement a wide range of measures, both interventionist and non-interventionist, in order to satisfy the demands of the principles of justice that are thought most accurately to express the values of democratic legitimacy and free and equal citizenship.

Social liberals for whom these values are of fundamental importance are likely to consider market freedom to be of no intrinsic importance, valuable only for any instrumental role its protection might play in enhancing the substantive opportunities or capabilities of the least advantaged members of society. After all, even insofar as the actual distribution of property and wealth does reflect the productive contributions made by the members of society, it is not clear why this distribution should be identified as perfectly or even substantially just, since citizens’ capacities to make productive contributions often depend on morally arbitrary factors, such as family background and natural talents and abilities, as well as simple brute luck (Murphy and Nagel, 2002; Rawls, 1999 [1971]). If the prospects of the relatively less fortunate can be improved by redistributing income and wealth from the relatively more fortunate, then this is what justice demands.

Indeed, social liberals might take the view that market freedom may justifiably be restricted, even if such restrictions diminish rather than enhance the prospects for material prosperity of the least advantaged members of society. For example, many have expressed concern that extreme inequalities in the distribution of income and wealth have undermined the independence of democratic political processes from the concentrations of private economic power that inevitably accompany concentrations of privately owned property and wealth (Picketty, 2014; Rawls, 2001; Stiglitz, 2013; Thomas, 2016). Some of those concerned about political inequality have argued that, in order to secure the independence of democratic political processes from the corrupting effects of such concentrations of power, it might not be enough simply to try to insulate the political sphere from the power that extreme accumulations of property and wealth generate: it may also be necessary to interfere in the free market process so that such extreme accumulations of property and wealth are broken up, or cannot form in the first place (Christiano, 1996; Cohen, 1989; Rawls, 1999 [1971]; 2001). Classical liberals have, of course, contested these claims, and have even argued that the level of state interference which would be needed in order to disperse concentrations of property and wealth or prevent their formation would itself pose a serious threat to citizens’ rights of political participation and association (Tomasi, 2012). But even if the claims in question are overblown or mistaken in certain respects, it would take a much more detailed discussion than I can provide in this book to justify the conclusion that the socio-economic inequalities which would arise in a market democratic POD would not result in unacceptable political inequality.

In this book I shall not express any firm views on the question of the extent to which progressive interventionist institutions should supplement progressive market democratic ones, restricting myself largely to an attempt to identify the particular kinds of redistributive and regulatory mechanisms that would be most (and least) likely effectively to boost the progressive impact of market democratic institutions, as well as the particular existing interventionist institutions that are in most urgent need of reform. I will, however, argue that what has become known as ‘liberal socialism’ can much more easily be ruled out as an appropriate institutional model for a liberal society of free and equal citizens: like the orthodox classical liberal laissez-faire institutional model, liberal socialism fails to provide the institutional context within which a suitably wide range of reasonable conceptions of the good may be pursued by the citizens of a liberal society. What I will also reject is the idea that the implementation of the interventionist redistributive and regulatory mechanisms characteristic of the social democratic welfare state and POD institutional models can provide an alternative to progressive market democratic institutions, particularly the socialization of rent. As I have already indicated, I shall argue that the predistribution/POD approach, as it has thus far been developed, is based on the implementation of radically interventionist redistributive and regulatory mechanisms for both its initial construction and long-term feasibility. One of the central themes of the book is that such measures, though well intentioned, will by themselves be more likely to exacerbate than to solve the social and economic problems caused by orthodox market democratic institutions. Progressive interventionist social democratic institutions are, at best, only necessary supplements to progressive market democratic institutions.

Thus, the contribution I wish to make to the market democracy and predistribution/POD literatures offers a challenge to both right- and left-liberalism. To respond to the inevitable social and economic problems generated by orthodox market democratic institutions by ignoring these problems, or by calling for the strengthening of orthodox market democratic institutions, is certainly to make a serious error. But to respond to these problems by placing all hope in higher levels of redistributive taxation and heavier restrictions on economic activity and the free market process is to fail fully to understand the reasons for these problems, and to fail to offer adequate and effective solutions. The geo-classical ideas of rent and its socialization provide cogent explanations for the problems that orthodox market democratic institutions create, and offer (at least partially) effective solutions to these problems.

However, the case for the market democratic POD presented in this book is not only a challenge to classical and social liberal ideas and arguments, but also an affirmation and endorsement of certain aspects of these arguments, such as the classical liberal aversion to over-reliance on interventionist institutions, and the social liberal rejection of orthodox laissez-faire institutions. What the book calls for is enhanced communication among and between classical and social liberals on questions concerning the characterization and limitations of the idea of a free-market system, and in particular some engagement with geo-liberal arguments for the socialization of the rental value of land as a progressive non-interventionist, market democratic, institutional mechanism. The book attempts to demarcate an area of common ground between the positions occupied by classical and social liberals, by identifying a set of institutional reforms to which both can agree, while at the same time recognizing that there will be many important issues about which they will continue to disagree. Of course, one might think that one has good reason to reject the claim that the socialization of rent must be a core institutional feature of any socially and politically just liberal society. But some engagement must be made with the arguments that support this claim and with those who endorse these arguments if they are to be rejected. The aim of this book is to encourage such engagement.

Notes

1

As I note in Chapter 3, this is, of course, a view with which many radical libertarians will disagree.

2

This distinction between strongly and minimally conditional rights of private ownership is similar in certain respects to ideas expressed by John Pullen (2001) and Robert Andelson (2001).

3

Namely, when holdings of land are owned outright, so that the rights of private ownership in respect of such holdings are not shared between, for example, a mortgagor and a mortgagee. I discuss these issues further in Chapter 6.

4

In this regard the interpretation of geo-classical liberalism developed in this book differs from ‘left-libertarian’ views (Steiner, 1994, pp. 249–258) which assign the same status to estates of the recently deceased as they assign to land. Nor is this interpretation of geo-classical liberalism compatible with ‘luck egalitarian’ views which demand that variations in welfare or opportunity be wholly determined by the responsible choices people make, rather than by differences in their unchosen circumstances.

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1 Classical Liberalism and the Idea of Market Freedom

Introduction

One of the central disagreements between the proponents of classical and social liberal theories of justice is about whether the same level of importance should be attached to the protection of formal rights of private ownership and freedom of contract – what we might call ‘the right to private property’ – as the fundamental importance that all liberals attach to the basic civil and political rights and liberties (Freeman, 2011; Tomasi, 2012a). While social liberals see the right to private property as strictly subordinate to basic civil and political rights and liberties, classical liberals consider it to be almost, if not equally, as important, its prioritization providing an essential safeguard against the threat to liberty posed by excessive state power. And while social liberals are sceptical of the compatibility of the right to private property with equality of opportunity and the demands of social justice, classical liberals emphasize its importance in improving the prospects of the worst-off members of society. For these reasons, classical liberals are far more reluctant than social liberals to endorse restrictions of the right to private property, even if they usually refrain from assigning anything like absolute priority to its protection (Freeman, 2011).[1] Thus, while classical and social liberals disagree about the importance of the right to private property, they agree that its prioritization would severely restrict the range of measures that might be implemented by the government of a liberal society in order to achieve certain objectives it considers to be desirable, such as reducing the degree of socio-economic inequality, or preventing the employment of workers under certain conditions which it considers to be unacceptable (Freeman, 2011; Gourevitch, 2015; Tomasi, 2012a, p. 76; 2012b, p. 33).

One of the central arguments of this book is that both classical and social liberals have tended to over-exaggerate the degree to which the prioritization of the right to private property would necessarily prevent liberal governments from pursuing and achieving progressive objectives, such as reducing the degree of socio-economic inequality or ensuring that working conditions and practices conform to a particular view of what is acceptable. This is not to say that the prioritization of the right to private property would not prevent governments from pursuing many such objectives, or from pursuing them as fully as they might like: many policies designed to achieve progressive aims would certainly be ruled out if formal rights of private ownership and freedom of contract were protected as strongly as fundamental civil and political rights and liberties. But what I shall argue is that since excessive socio-economic inequality and insufficient substantive opportunity in contemporary liberal societies are to a significant extent the result of violations of formal rights of private ownership, these social conditions are forms of injustice which may be mitigated (though certainly not eliminated) by strengthening rather than weakening the protection of the right to private property. It is my contention that neither the important institutional implications of this line of argument nor the considerations which support it have been fully understood by the proponents of classical and social liberal theories of justice.

The need for the development of this line of argument has arisen partly as a result of the failure of mainstream liberal thinkers to take sufficient account of the flexibility, internal complexity, and contestable character of the form of freedom which is secured through the protection of the right to private property – what I shall call ‘market freedom’ – and of their adoption, largely without question, of what I shall refer to as the ‘orthodox’ conception of this form of freedom. As outlined in the Introduction and set out more fully in Chapters 3 and 5, what I refer to as orthodox market freedom is secured through the minimally conditional protection of rights of private ownership in respect of both privately and non-privately created property. Unorthodox market freedom, by contrast, is secured through the minimally conditional protection of the rights of private ownership specifically in respect of privately created property, and the strongly conditional protection of rights of private ownership in respect of holdings of land and natural resources (henceforth: land). It is argued in Chapters 5 and 6 that the right to private property is more strongly and effectively protected if holdings of land are protected subject to the specific condition that the private owners of this form of property incur and meet a tax liability which is equal to the rental value of the holdings that each owns, while holdings of privately created property are protected subject only to minimal conditions, which do not include any kind of additional tax burden. Thus, one cannot be fully committed to the prioritization of market freedom if one endorses the minimally conditional protection of rights of private ownership in respect of holdings of land, since this would leave rights of private ownership in respect of privately created property insufficiently protected for all citizens.

Of course, like the prioritization of orthodox (or ‘faux’) market freedom, the prioritization of unorthodox (or ‘real’) market freedom may be strongly endorsed, or only partially endorsed, or entirely rejected. But as we will see in Chapters 5 and 6, the institutional implications of endorsing or rejecting real market freedom contrast radically with the institutional implications of endorsing or rejecting faux market freedom: the socio-economic institutions that secure real market freedom are far more progressive than those that secure faux market freedom. Although I shall not argue in this book that real market freedom should indeed be prioritized, I shall try to assess and clarify what its prioritization would require in terms of the reform of socio-economic institutions in contemporary liberal societies, and how far the implementation of such reforms might take the place of, and perhaps reduce the need for, the implementation of additional supplementary progressive reforms. This progressive line of inquiry may be contrasted with the social liberal critique of the classical liberal conception of market freedom, which has largely[2] focused on marginalizing and de-prioritizing orthodox market freedom, rather than developing a more defensible interpretation of this form of freedom and its institutional implications.

In this chapter I prepare the ground for the critique of orthodox market freedom developed in later chapters by highlighting the way in which modern classical liberalism, by failing to distinguish between minimally and strongly conditional rights of private ownership, has obscured both the complexity and interpretative flexibility of this form of freedom, and the potentially highly progressive institutional implications of its enhanced protection. I begin by focusing on the highly influential contribution made by Isaiah Berlin to the conceptual analysis of the idea of freedom. Implicit in Berlin’s discussion of what does and does not count as ‘negative liberty’ is, I shall argue, a set of (largely silent) assumptions about the centrality of the institution of private property to this idea of liberty. One such assumption is that negative liberty consists at least in part in the minimally conditional protection of rights of private ownership in respect of both privately and non-privately created property. Another is that in order to advance ends and objectives associated with values such as positive liberty, equality, justice, or solidarity, a government must restrict negative liberty in order to mitigate the significant socio-economic inequalities which inevitably result from its excessive protection. Thus, on the view that is implicit in Berlin’s discussion of positive and negative liberty, institutional reforms that enhance the realization of positive liberty (or some other value) by ameliorating socio-economic inequality cannot be achieved by strengthening the protection of negative liberty, but only by weakening it.

This view, I shall argue, is expressed, in different ways, in the work of classical liberals like Friedrich Hayek, Milton Friedman, and Richard Epstein, none of whom have paid sufficient attention to the complexities and interpretative flexibility of the idea of market freedom, each expending too much effort in highlighting the threat to freedom and economic efficiency posed by excessive state intervention in (what they erroneously take to be) ‘free market capitalism’, and not enough in attempting to clarify what strengthening the protection of market freedom would actually entail. In this first chapter I restrict my attention to this fairly narrow area of classical liberal political thought, discussing radical libertarianism and the currently emerging school of ‘neo-classical’ liberalism in Chapters 3 and 4 respectively. From an analysis of the narrow area of classical liberalism on which I focus in this chapter, we can highlight the lack of explicit justification for what is nevertheless a view that is deeply entrenched within the classical liberal tradition – the view that there is always a tension and competitive rivalry between the forces of ‘capitalism’ and ‘economic liberty’, on the one side, and those of social justice and equality, on the other. Chapter 2 then highlights the prevalence of this view within the social liberal tradition.

Isaiah Berlin: Negative Liberty and the Idea of Market Freedom

Market Freedom as a Form of (Partially) Negative Liberty

In 1958, Isaiah Berlin presented the lecture in which he made his famous and highly influential distinction between positive and negative liberty. On Berlin’s account of this distinction, ‘negative’ liberty concerns the answer to the question ‘What is the area within which the subject – a person or group of persons – is or should be left to do or be what he is able to do or be, without interference by other persons?’, while ‘positive’ liberty concerns the answer to the question ‘What, or who, is the source of control or interference that can determine someone to do, or be, this rather than that?’ (1969, pp. 121–122). By drawing the distinction between positive and negative liberty in this way, Berlin wanted to express the view that although the answers to these two questions may overlap, they are nevertheless answers to two separate questions, identifying two different and often conflicting conceptions of liberty. It is true, Berlin conceded, that negative liberty, ‘the freedom which consists in not being prevented from choosing as I do by other men’, and positive liberty, ‘the freedom which consists in being one’s own master’, may seem at first glance to be concepts ‘at no great logical distance from each other – no more than negative and positive ways of saying much the same thing’ (ibid., pp. 131–132). As a matter of ‘historical fact’, however, the two concepts developed ‘in divergent directions, not always by logically reputable steps, until, in the end, they came into direct conflict with each other’ (ibid., p. 132).

Berlin was concerned primarily with what he saw as the not so logically reputable development of the positive conception of liberty, the freedom ‘to lead one prescribed form of life – which the adherents of the “negative” notion represent as being, at times, no better than a specious disguise for brutal tyranny’ (ibid., p. 131). My main concern, however, is not Berlin’s account of the historical development – or rather the degeneration – of the positive conception of liberty, but rather his (not always entirely consistent) account of the meaning of negative liberty, and his view of the relationship of this form of freedom with other values such as positive liberty, equality, justice, and solidarity. What I would like initially to argue is that the concept of liberty that Berlin identifies as ‘negative’ is not a purely negative conception of liberty at all: as his account of the relationship between so-called ‘positive’ and ‘negative’ conceptions of liberty develops, it becomes increasingly clear that what Berlin calls ‘negative liberty’ is in fact positive in at least two important senses.

Berlin defines negative liberty initially as ‘simply the area within which a man can act unobstructed by others … By being free in this sense I mean not being interfered with by others’ (ibid., p. 123). As James Tully points out, one advantage of this definition is that ‘it makes no reference to the desires, choices, abilities, or activities of the subjects in the area, and thus does not potentially overlap with positive liberty, which focuses on abilities, choices, and activities of free and self-governing agents’ (2013, p. 31). The corresponding disadvantage, however, is that it may not be possible ‘to determine what counts as interference or an obstacle without some reference to the agency of those who are not interfered with’ (ibid., p. 31). Berlin seems at least implicitly to recognize this problem when he states that freedom in the negative sense may be measured not only by the strength of ‘the barriers to the imposition of one man’s will on another’, but also by ‘the number and importance of the paths which they keep open for their members – if not for all, for at any rate a great number of them’ (Berlin, 1969, p. 166). Thus, although negative liberty is something ‘the extent of which, in a given case, it is difficult to estimate’, what we can say is that the extent of a person’s freedom seems to depend, among other things, on ‘what value not merely the agent, but the general sentiment of the society in which he lives, puts on the various possibilities’ that are left open (ibid., p. 130, n.1). It is therefore not logically absurd to suggest that the extent of negative liberty can (if imprecisely) be measured, such that, for example, ‘we can give valid reasons for saying that the average subject of the King of Sweden is, on the whole, a good deal freer today [in 1958] than the average citizen of Spain or Albania’ (ibid., p. 130, n.1).

This account of negative liberty and its measurement would appear to be consistent with Berlin’s later, revised definition of negative liberty, which he presented in response to criticisms made of (some of) the formulations found in the original lecture. In the Introduction to Four Essays on Liberty, in which he revises and provides commentary on his original lecture, Berlin states that

[t]he sense of freedom in which I use the term entails not simply the absence of frustration (which may be obtained by killing desires), but the absence of obstacles to possible choices and activities – absence of obstructions on roads that a man can decide to walk. Such freedom ultimately depends not on whether I wish to walk at all, or how far, but on how many doors are open, how open they are, upon their relative importance in my life.

(ibid., p. xxxix)

If ‘the number and importance of the paths’ which negative liberty keeps open are relevant to the measurement of the degree and strength of this liberty, then this implies that the nature of the desires, choices, and agency of those whose freedom is measured is relevant to this process of measurement, and therefore to the determination of what counts as ‘interference’ or an ‘obstacle’. Consider again Berlin’s example of the degree of freedom enjoyed by subjects of the King of Sweden relative to that enjoyed by the citizens of Spain or Albania. As Charles Taylor has pointed out, if we are to estimate and compare the degrees of freedom enjoyed by the members of two societies on the basis simply of the number of acts which are restricted in each society, then we will be likely to draw the seemingly absurd conclusion that a society which has abolished religion but in which there are very few traffic lights is freer than a society in which there are many traffic lights but which has not abolished religion (1991, pp. 150–151). Because we deploy the concept of freedom ‘against a background understanding that certain goals and activities are more significant than others’, we ‘make discriminations between obstacles as representing more or less serious infringements of freedom’, and this freedom is therefore not simply the absence of obstacles (ibid., p. 149).

As we have just seen, however, Berlin’s ‘negative liberty’ is not simply ‘the absence of obstacles’: it is the absence of obstacles to relatively important choices and activities, choices and activities whose significance is affirmed by the ‘general sentiment’ of society, as well as by individual agents. As Tully again points out, this more complex definition of ‘negative’ liberty is perhaps not as distinct from the idea of positive liberty as Berlin suggests:

[I]f negative liberty is defined in terms of open doors relative to choices and activities, and the relative importance of them in each person’s life, then it clearly shares criteria with and is internally related to the positive liberty of making choices, engaging in activities, and evaluating them relative to one’s way of life.

(Tully, 2013, p. 32)

Berlin himself seemed to concede that this less ‘value-neutral’ account of negative liberty shares certain features with positive liberty and only comes into direct conflict with it when positive liberty itself becomes distorted and perverted:

If it is maintained that the identification of the value of liberty with the value of a field of free choice amounts to a doctrine of self-realization … and that this is closer to positive than to negative liberty, I shall offer no great objection; only repeat that, as a matter of historical fact, distortions of this meaning of positive liberty … obscured this thesis and at times transformed it into its opposite.

(1969, p. lxi)

What Berlin seems to be saying here is that so-called ‘negative liberty’ as the absence of obstacles to possible significant choices and activities is not in fact pure negative liberty at all, but rather a kind of (at least partially) ‘positive’ conception of liberty which has not yet been distorted and ‘transformed into its opposite’. But there is another important sense in which the conception of freedom as the absence of obstructions to possible significant choices and activities is positive rather than negative, which we can highlight by considering Berlin’s reference, in relation to the question whether poverty and deprivation are to count as restrictions of negative liberty, to the distinction between liberty and the value of liberty.

Berlin’s Distinction Between Liberty and the Value of Liberty

In ‘Two Concepts of Liberty’, as well as in his later commentary, Berlin acknowledges that in the absence of adequate conditions in which it can be used, freedom is worth little or nothing to those who theoretically possess it (1969, pp. xlvi, 124). However, he then goes on to argue that to improve a person’s ‘conditions for the use of freedom’, and thus to increase the value of freedom to this person, is not to increase freedom itself:

nothing is gained by a confusion of terms. To avoid glaring inequality or widespread misery I am ready to sacrifice some, or all, of my freedom: I may do so willingly and freely; but it is freedom that I am giving up for the sake of justice or equality or the love of my fellow men.

(ibid., p. 125)

There might, Berlin acknowledges, be many powerful considerations relating to the values of equality, or justice, or solidarity, or compassion, which strongly support state intervention in order to mitigate poverty and deprivation among the poorest members of society. However, ‘[e]verything is what it is: liberty is liberty, not equality or fairness or justice or culture, or human happiness or a quiet conscience’ (ibid., p. 125). On this view, poverty-mitigating state intervention might make it possible for the poorest members of society to enjoy their negative rights and liberties, but it does not provide them with more negative liberty, and it does take away negative liberty from other better-off members of society: more equality and justice means less liberty. Thus, although the poverty and deprivation experienced by the poorest in society under nineteenth-century laissez-faire capitalism made their negative liberty ‘hollow’, and an ‘odious mockery’, nevertheless, ‘[i]f a man is too poor or too ignorant or too feeble to make use of his legal rights, the liberty that these rights confer upon him is nothing to him, but it is not thereby annihilated’ (ibid., pp. xlvi–liii, emphasis added).

What Berlin seems to be casting doubt on here is the validity of any social or economic theory (such as the ‘Marxist conception of social laws’ and the ‘socialist conceptions’ to which he refers explicitly in the ‘Two Concepts’ lecture (ibid., p. 123, n. 1). which identifies the causation of poverty in alterable human arrangements, and which thereby connects poverty with the violation of negative liberty. Modern expressions such as ‘economic freedom’ and ‘economic slavery’ are, in Berlin’s view, only meaningful if we accept ‘a particular social and economic theory’ about the causes of poverty or weakness that gives us reason to believe that ‘my inability to get a given thing is due to the fact that other human beings have made arrangements whereby I am, whereas others are not, prevented from having enough money with which to pay for it’, or that ‘I am being kept in want by a specific arrangement which I consider unjust or unfair’ (ibid., p. 123). If people who are too poor or too ignorant to make use of their legal rights are, nevertheless still, as Berlin insists, made free (in the negative sense) by these rights, then their poverty and ignorance cannot be said to be caused by a lack of negative liberty, or to violate the liberty conferred upon them by their legal rights. Berlin, therefore, seems to take the view, contrary to any social and economic theories which might seek to connect poverty with the violation of negative liberty, that extreme poverty and deprivation are likely to be the result of the excessively strong protection of negative liberty, can never be the result of the insufficiently strong protection of negative liberty, and can therefore only be alleviated by restricting this form of freedom, and never by enhancing it.[3]

We can now identify the second sense in which Berlin’s conception of liberty as the absence of obstacles to possible significant choices and actions is positive rather than negative. If those in extreme poverty are rendered no less free by their poverty, and if the alleviation of their poverty is likely to require the sacrifice of the liberty of the rich and strong, then this implies that negative liberty is secured through the institutionalization by the state of (among other things) the rule of law and the legal protection of formal rights of private ownership. For if the violation of my rights of private ownership, whether through the theft or destruction of my property, or through the state-enforced taxation of part of my property, does not constitute an ‘obstacle’ to choices and activities which would otherwise have been possible for me, then it is difficult to see how the alleviation of poverty through state interference in the free market system would be thought to be likely to require the sacrifice of the liberty of the rich and strong. But if the theft, destruction, or state-enforced taxation of (part of) my property does constitute an ‘obstacle’ to choices and activities which would otherwise have been possible for me, then the ‘absence of obstacles’ that is constitutive of Berlin’s conception of negative liberty consists at least partly in the creation and enforcement, and not just the absence, of laws.[4] This conception of freedom as an absence of obstacles which is created by an appropriate legal framework may be contrasted with the purely negative conception of freedom as the absence of law endorsed by Jeremy Bentham.[5]

Berlin’s conception of liberty as the absence of obstacles to possible significant choices and activities is therefore not a purely negative conception, first, because in its reference to significant choices and activities, it is not value-neutral, and, second, because the ‘absence of obstacles’ to which Berlin refers does not entail the absence of law, but rather the existence of a legal framework consisting of the rule of law and a range of civil, political, and economic rights and liberties, including formal rights of private ownership and freedom of contract. However, although this conception of liberty is not purely negative, it can be said to be partially negative and may be distinguished on this basis from other much more positive conceptions. It is partly the purely formal, non-substantive nature of the obstacle-removing legal framework that makes Berlin’s conception a partially negative form of liberty, which is to be distinguished from more positive conceptions. The legal protection of formal non-substantive economic rights constitutes what I referred to in the Introduction to this chapter as ‘market freedom’ – the freedom that is secured through the strongest possible protection of rights of private ownership in respect of the widest possible range of forms of property. Thus, even if it is not a purely negative conception of the sort endorsed by Bentham, Berlin’s conception of liberty as the absence of obstacles to possible significant choices and actions is a ‘negative’ conception in the sense that it does not incorporate any substantive economic rights in addition to the formal civil, political, and economic rights and liberties.

This conception of liberty may also be said to be negative in the sense that the rules that constitute the legal framework which prevents obstacles to possible significant choices and activities from arising do not favour any particular significant purposes over any others, facilitating only the pursuit of significant purposes in general. Conceptions of liberty which do incorporate substantive economic rights in addition to and at the expense of formal economic rights, or which do favour particular significant purposes over others, are positive in a sense in which Berlin’s negative conception is not. The protection or promotion of this kind of positive liberty entails the restriction of Berlinian negative liberty: the form of freedom identified by Berlin as ‘negative’ is restricted when the legal rules that prevent obstacles from arising are suspended or curtailed in order to ensure that some citizens are able to pursue purposes that they would otherwise be unable to pursue.

The rules that secure Berlin’s partially negative conception of liberty might therefore be said to be similar in some respects to the ‘rules of the road’: by controlling and coordinating individuals’ use of the limited space for travelling provided by the road network, the rules of the road facilitate travel by numerous agents between a wide range of destinations, but do not make one destination any more likely to be visited than any other, and do not make all or any agents successful in reaching the destinations to which they decide to travel. If I lack a functioning vehicle and/or fuel to drive it, then I cannot travel more than a short distance (on foot), no matter how many roads I could choose to use if I did have the means to do so (unless, of course, I can persuade someone with access to a functioning vehicle to drive me to my destination). This idea of (partially) negative economic liberty may be contrasted with what we might call ‘social freedom’ – the freedom that consists in having the substantive (rather than merely formal) opportunity or capability actually to achieve one’s aims and to realize the purposes one decides to pursue as part of one’s reasonable conception of the good. If market freedom is secured specifically through the protection of formal rights of private ownership and freedom of contract, then social freedom is secured when the formal civil, political, and economic rights and liberties have been made as ‘effective’ and ‘real’ as possible for as many citizens as possible. And formal rights and liberties become ‘effective’ and ‘real’ when the citizens who enjoy these rights and liberties also enjoy the control over material resources – the positive right to private property – that generates substantive opportunities or capabilities to pursue a wide range of aims and purposes.[6]

Of course, proponents of the prioritization of market freedom will insist that the formal civil and political rights and liberties are made most effective and real precisely by the strong protection of negative economic rights of private ownership and freedom of contract, and are made less effective and real by the state control of the free market process that violations of these rights make possible. On this view, the prioritization of market freedom is the most effective way in which social freedom can be secured.[7] But for the opponents of the prioritization of market freedom, social freedom can be secured only through the protection of positive, substantive economic rights to access to material resources and positions of economic power, and through the restriction of market freedom that this entails. On this view, the restriction of market freedom protects the interests of vulnerable individuals and groups, compensates less advantaged members of society for the morally arbitrary effects of differences in luck and natural endowments, and generally protects citizens’ fundamental interests in having the capability effectively to pursue their conceptions of the good.

Returning to our ‘rules of the road’ metaphor, then, we can say that while negative economic liberty facilitates travel by multiple agents between a range of destinations, positive economic liberty ensures that all agents (or as many as possible) have access to a vehicle and the fuel to drive it, thereby ensuring that as many agents as possible enjoy the substantive opportunity or capability actually to reach the destinations to which they plan to travel. Analogously, if the strong protection of formal rights of private ownership means that some own much more property than others, and that some are for this reason much more successful in pursuing their aims and achieving their purposes than others, then it might (erroneously or otherwise) be thought that the aims and purposes of those less successful can be made more achievable and realizable only by weakening the protection of some or all of the incidents of ownership, or by narrowing the range of forms of property in respect of which these incidents apply. In these ways, it might be thought, the negative economic liberty of more advantaged citizens can be restricted in order to generate a less unequal distribution of private property, or to transform a certain amount of private property into public property, thereby improving access to material resources and positions of economic power for less advantaged citizens, and enhancing their substantive capabilities and positive liberty.

This interpretation of the distinction between the two forms of liberty bears very little relation to the central theme of Berlin’s ‘Two Concepts’ lecture – the distortion and transformation of the idea of freedom as self-mastery into its opposite. It does, however, bear some relation to Berlin’s discussion of the distinction between liberty and the value of liberty: the protection of what I have called ‘social freedom’ requires the alleviation of poverty and deprivation, acknowledged by Berlin as being part of the conditions in which negative liberty could meaningfully be exercised. More importantly, we will see in Chapter 2 that it is an interpretation which has, at least implicitly, been widely adopted by social liberals since Berlin’s presentation of ‘Two Concepts of Liberty’ in 1958. What we will also see in Chapter 2 is that social liberals have largely followed Berlin in emphasizing the conflict, rather than the common ground, between negative liberty and other values and ideals. In the remainder of this section I would like to consider why Berlin was so keen to emphasize the conflict, rather than the common ground, between negative liberty and other values and ideals.

Value Pluralism and the Relationship Between Market Freedom and Other Social and Political Values

As I have already argued, given his view that the extreme poverty and deprivation experienced under nineteenth-century laissez-faire capitalism made the negative economic liberty of the impoverished and deprived ‘hollow’, and an ‘odious mockery’, without, however, ‘annihilating’ it, it is fair to say that Berlin seems to have assumed that it was precisely the strength of the protection of negative economic liberty under nineteenth-century laissez-faire capitalism that caused such extreme poverty, and that only by weakening the protection of this form of liberty could this poverty be alleviated. Berlin’s constant emphasis on the need to avoid confusing negative liberty with other values and ideals, his insistence that the alleviation of socio-economic inequality must entail a loss of negative liberty, and his emphasis on the fundamental tension between this form of freedom and other social and political values and ideals are perhaps best explained[8] by his long-standing preoccupation with the idea of value pluralism, to which he turned explicitly towards the end of his ‘Two Concepts’ lecture. For Berlin, the belief in an ultimate ‘final solution’ – the one belief which, ‘more than any other, is responsible for the slaughter of individuals on the altars of the great historical ideals’ – itself rests on the conviction that ‘all the positive values in which men have believed must, in the end, be compatible, and perhaps even entail one another’ (1969, p. 167). If people could be assured

that in some perfect state, realisable by men on earth, no ends pursued by them would ever be in conflict, the necessity and agony of choice would disappear, and with it the central importance of the freedom to choose. Any method of bringing this final state nearer would then seem fully justified, no matter how much freedom were sacrificed to forward its advance.

(ibid., p. 168)

In the real world, however, ‘we are faced with choices between ends equally ultimate, and claims equally absolute, the realisation of some of which must inevitably involve the sacrifice of others’ (ibid., p. 168). Consequently, Berlin argued, the extent of a person’s or a people’s freedom to live as she/he or they desire cannot be unlimited since it ‘must be weighed against the claims of many other values, of which equality, or justice, or happiness, or security, or public order are perhaps the most obvious examples’ (ibid., p. 170).

Berlin’s profound concern to warn his audience of the dangers of monism – and the dogmatic certainty in the compatibility of ultimate values that it entails – and to express his belief in pluralism – with ‘the measure of negative liberty that it entails’ – perhaps prevented him from recognizing the need to draw attention to the common ground between values, to the ways in which values can overlap as well as conflict, and, more specifically, to the ways in which poverty, deprivation, and socio-economic inequality might result from a lack, rather than an excess, of negative liberty. Such a failing is perhaps understandable in a lecture delivered not so many years after the events of the Second World War, and at the height of the Cold War. As Berlin himself put it, although both concepts of liberty seem ‘liable to perversion into the very vice which it was created to resist’, nevertheless,

whereas liberal ultra-individualism could scarcely be said to be a rising force at present, the rhetoric of ‘positive’ liberty, at least in its distorted form, is in far greater evidence, and continues to play its historic role (in both capitalist and anti-capitalist societies) as a cloak for despotism in the name of a wider freedom.

(ibid., pp. xlvi–xlvii)

It seems fair to say, however, that the danger of the ‘totalitarian menace’ supported by some monistic conception of positive liberty has now receded, and that the most powerful ideological force of the twenty-first century is arguably the ‘negative liberty’ of neo-liberal ‘free-market’ fundamentalism. In these circumstances it is surely less important to focus, as Berlin did, on the historical degeneration and transformation of the idea of the positive liberty of self-mastery, and more important to examine, and if necessary to challenge, contemporary (mis)interpretations of the ‘negative liberty’ of market freedom.

One might argue, of course, that even in Berlin’s time it was just as important to highlight the destructive impact of distorted forms of negative liberty as it was to highlight the destructive impact of distorted forms of positive liberty, given what Berlin himself described as ‘the evils of unrestricted laissez-faire’ and ‘the bloodstained story of economic individualism and unrestrained capitalist competition’ (ibid., p. xlv). But given the assumptions he made about the need for compromise between the claims of negative liberty and those of other values and ideals if the ‘great and lasting social evils’ associated with negative liberty were to be prevented from arising again, it is clear that Berlin was simply unaware of the extent to which negative liberty can (as I shall argue) be distorted, or at least unaware of the particular way in which (I shall argue) it has been distorted. Negative liberty, as Berlin saw it, ‘was much less often defended or disguised by the kind of specious arguments and sleights-of-hand habitually used by the champions of “positive” freedom in its more sinister forms’ (ibid., p. xlv). What I shall argue is that there are good reasons to think that many great and lasting social evils have resulted precisely from the use of specious arguments and sleights-of-hand to defend a distorted and perverted form of ‘negative’ liberty.

For these reasons, even if we set aside the criticisms of the idea of freedom as non-interference highlighted most notably by Quentin Skinner (1998; 2002) and Philip Pettit (1997; 2012), Berlin’s contribution to the conceptual analysis of the idea of freedom can reasonably be said to have had an unfortunate impact on the development of liberal thinking in this area. Berlin’s messy and not entirely self-consistent analysis of the distinction between positive and negative conceptions of liberty has diverted attention away from important questions about the meaning and real institutional implications of the prioritization of market freedom, and about the relationship of this form of freedom with other social and political values, at the same time as incorporating as a silent, unexamined assumption a particular interpretation of the meaning and institutional implications of this form of freedom, and of its relationship with other social and political values. Contrary to what is implied in Berlin’s remarks on value pluralism and the dangers of monism, the values of negative liberty, positive liberty, and equality can overlap as well as clash and collide: from the fact that unrestricted market freedom is undoubtedly incompatible with full substantive equality, it does not follow that more strongly protected market freedom necessarily means more socio-economic inequality, or that less strongly protected market freedom necessarily means less socio-economic inequality; and it cannot simply be assumed that the poverty and deprivation which were widespread in industrializing, ‘laissez-faire’, liberal democratic societies in the nineteenth century were the result of excessively strongly protected negative liberty, preventable only through the implementation of interventionist, redistributive, and regulatory mechanisms that would have restricted market freedom.

For reasons which I hope will become clearer as the argument of the book develops, I believe that such assumptions reflect a particular (mis) interpretation of the idea of market freedom which may be challenged and rejected. More specifically, I shall argue that these assumptions can be accepted only by those who adopt, whether implicitly or explicitly, what I have referred to as the orthodox classical liberal interpretation of the idea of market freedom, that is, an interpretation that identifies the prioritization of this form of freedom in terms of what I have referred to in the Introduction to this chapter as the minimally conditional protection of rights of full liberal ownership in respect of a wide range of forms of property, including land and natural resources. I shall argue further that the adoption of a less orthodox and more defensible interpretation of the idea of market freedom, which limits the minimally conditional protection of rights of private ownership to privately created property, makes it plausible to suggest that poverty, deprivation, and socio-economic inequality are often the result of violations of market freedom, rather than conditions which can be alleviated only by weakening the protection of this form of freedom in order to strengthen the promotion of positive freedom, or of equality, justice, solidarity, and so on.

In developing this line of argument, I do not mean to suggest that the prioritization of market freedom would not be incompatible with the full realization of other social or political values, or that the protection of market freedom should take precedence over the promotion of any values with which it might collide. Although it is an important part of my argument that certain kinds of highly progressive institutional reforms can be justified without the need to appeal to any values or ideals of positive liberty, substantive equality, solidarity, and so on, it does not follow from this argument that one cannot appeal to considerations relating to these other values and ideals and, on this basis, demand the implementation of reforms which are more radically progressive than those that I endorse, and which can be implemented only by restricting market freedom. As Berlin correctly points out, ‘[t]hat we cannot have everything is a necessary, not a contingent, truth’ (1969, p. 170). The point I would like to make is simply that the area of overlap between market freedom and other values and ideals – the common ground between them – is greater than classical and social liberals often seem to suppose, even though all these values and ideals will of course at some point collide, making some form of balancing, or prioritization, or compromise, a necessity.

It is worth contrasting this view of the relationship between negative liberty and other values and ideals with the view expressed by G. A. Cohen in his attempt to defend the claim, which he regards as an ‘overwhelmingly obvious truth’, that poverty generates or constitutes a lack of negative liberty (Cohen, n.d., p. 2). Cohen observes that ‘left-wing people’ sometimes argue that the protection of the formal freedom to do anything that the state does not forbid does not make poor people really free to do very many of these things, since the poor are prevented from doing many things by being unable to afford to do them. He then observes that

[right-wing people] now rejoin that, in saying all that, the left confuse freedom with resources. You are free to do anything that no one will interfere with, say the right. If you cannot afford to do something, that does not mean that you lack the freedom to do it, but just that you lack the means, and, therefore, the ability to do it. The problem the poor face is not that they lack freedom, but that they are not always able to exercise the freedom that they undoubtedly have. When the left say that the poor, by virtue of being poor, lack freedom itself, the left, so the right claim, indulge in a tendentious use of language.

(ibid., p. 3)

Cohen recognizes that one response which might be made by those on the left to the argument of those on the right would be to accept that freedom should not be confused with access to resources, and then to argue that access to resources is just as important as freedom, which may therefore rightly be restricted in order to ensure access to resources for the poor – a position which, Cohen suggests, is adopted by John Rawls as well as Isaiah Berlin. But Cohen is instead concerned to respond to the argument from the right specifically by challenging the claim that the left are confusing freedom with resources. Cohen asks us to consider

a moneyless woman who wants to pick up, and take home, a sweater on the counter at Selfridge’s. If she contrives to do so, she will be physically stopped outside Selfridge’s and the sweater will be removed. The only way you won’t be prevented from getting and using things that cost money in our society – which is to say: most things – is by offering money for them.

(ibid., p. 13)

Since money serves, in a variety of circumstances, to remove the interference that will be likely to occur when a person attempts to use a resource owned by someone else without their permission, it therefore follows, in Cohen’s view, that ‘to lack money is to be liable to interference’, and that ‘money confers freedom, rather than merely the ability to use it, even if freedom is equated with absence of interference’ (ibid., p. 13).

I have outlined Cohen’s position on the relation of money, poverty, and freedom in order to distinguish it from the position adopted and defended in this book. What I will be arguing is not that lack of money necessarily generates or constitutes lack of freedom, but rather something along the lines of a view expressed in a statement made by Berlin in his later work, which Cohen highlights (ibid., p. 18, n. 33) in order to differentiate it from his own position. In The First and the Last (1999), Berlin considers the example of a poor person who is free to rent a room in an expensive hotel but, being poor, is not able to rent a room and therefore lacks the means of using this freedom. If we assume that such a person ‘has not the means … because he has been prevented from earning more than he does by a man-made economic system’, then, in Berlin’s view, we can say that this person has been deprived of freedom – though the freedom of which he has been deprived is the freedom to earn money, not the freedom to rent the room (ibid., pp. 61–62). The arguments developed in this book will take a very specific version of the general form of this kind of argument: violations of market freedom have prevented people from engaging in mutually beneficial productive economic activity, and have deprived people of a significant part of the property that their applications of labour and capital have created. Strengthening the protection of market freedom will therefore remove obstacles to the significant choices and activities associated with engaging in productive economic activity, and will enhance the protection of people’s rights of private ownership in respect of property that they create through their applications of labour and capital.

In other words, we cannot say that a person who is impoverished necessarily lacks market freedom – if a person is impoverished because he refuses to participate in the wealth-creating process, or because he lacks the skills and abilities needed to make a significant productive contribution, then we cannot say that he is impoverished because his market freedom has been violated, or that his poverty constitutes lack of market freedom, even if he would have been better off under a different kind of ‘man-made economic system’ – say, one that incorporates institutions that redistribute income and wealth from rich to poor. Only if a person has been prevented ‘by a man-made economic system’ from creating as much property by and for herself, using her own talents and abilities (or good fortune), than she would otherwise have been able to create, can we say that her inability to earn more money results from a restriction or violation of market freedom.[9] This interpretation of market freedom and its restriction will of course be developed in much more detail in later chapters.

In the remainder of this chapter I highlight the prevalence among some of the most influential twentieth-century classical liberal thinkers of the familiar orthodox interpretation of market freedom and its relationship with other values and ideals which is expressed in Berlin’s work. I focus in the next section on the work of Friedrich Hayek.

Friedrich Hayek: Private Property and Market Freedom

The Limits of Knowledge and the Possibility of Rational Economic Activity

Friedrich Hayek’s political and economic thought contributed significantly to the revival of classical liberal theory and practice in the second half of the twentieth century, after the rise of modern social liberalism in the late nineteenth and early twentieth centuries. One of Hayek’s most important contributions to the revival of classical liberalism was his emphasis on the limits of human knowledge, and his analysis of the implications of these limits with regard to the possibility of the mutually beneficial coordination of the diverse practical plans and purposes pursued by the citizens of a large and complex society. According to Hayek, the knowledge and information which are necessary for rational economic decision-making and for the coordination or integration of independently pursued purposes ‘never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess’ (1945, p. 519). This special form of dispersed knowledge which facilitates the integration of different plans of life is not organized scientific or technical knowledge, but practical knowledge of concrete situations, knowledge of people, of local conditions, and of special circumstances – ‘the knowledge of the particular circumstances of time and place’ (ibid., pp. 521–522).

Hayek argued that since the practical knowledge on which rational economic activity depends is dispersed throughout society, embodied in the skills and habits of countless individuals, it follows that the only way in which rational economic activity can occur is through the operation of the market process, in particular, through the knowledge-gathering role of market pricing: in a free society the price system allows dispersed knowledge to be utilized to everyone’s advantage by ensuring ‘that the knowledge of the particular circumstances of time and place will be promptly used’ (ibid., pp. 524–527). Let us assume, for example,

that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin.

(ibid, p. 526)

Thus, by knowing only one thing, namely, the price of a commodity or product or service, producers and consumers of these commodities, products, or services are able to make rational decisions about how much to produce or consume, and thereby to cooperate and coordinate their activities in mutually advantageous ways. By contrast, prices set periodically by a central planning agency or controlled by centrally imposed floors and ceilings will fail accurately to track the knowledge, skills, and preferences of individual producers and consumers, and will therefore fail to convey reliable and up-to-date information: for this reason, ‘only prices determined on the free market will bring it about that demand equals supply’ (Hayek, 1960, p. 63).

For Hayek, then, the possibility of rational and mutually beneficial economic activity depends on the existence of a free market within which prices can be set by producers and consumers changing their patterns of production and consumption in line with changes in the prices of goods and commodities. And such a market can exist, in Hayek’s view, only within a stable and predictable legal framework of rules and institutions, including those of private property and freedom of contract, which reduce ‘the mutual interference of people’s actions with each other’s intentions’, and ‘prevent as much as possible, by drawing boundaries, the actions of different individuals from interfering with each other’ (1982, Vol. 1, pp. 107–108). On this view, when people engaging in economic activity develop expectations concerning the outcome of the activities in which they are engaged, the effect of the rules of property is to increase the likelihood that the largest possible number and range of expectations will be fulfilled – without, however, ensuring that all will be fulfilled, and at the cost, moreover, of ensuring that some expectations will be systematically disappointed (ibid., Vol. 1, p. 102). As Hayek explains,

It is regarded as fully legitimate to switch patronage and thereby disappoint the confident expectations of those with whom one used to deal. The harm that one does to another which the law aims to prevent is thus not all harm but only the disappointment of such expectations as the law designates as legitimate.

(ibid., Vol. 1, pp. 102–103)

The ‘central problem’ of determining which expectations must be assured in order to maximize the possibility of expectations in general being fulfilled therefore ‘implies a distinction between such “legitimate” expectations which the law must protect and others which it must allow to be disappointed’ (ibid., Vol. 1, p. 107). And, according to Hayek:

the only method yet discovered of defining a range of expectations which will be thus protected … is to demarcate for every individual a range of permitted actions by designating … ranges of objects over which only particular individuals are allowed to dispose and from the control of which all others are excluded.

(ibid., Vol. 1, p. 107)

For Hayek, then, people can use their own knowledge in the pursuit of their own purposes without colliding with each other ‘only if clear boundaries can be drawn between their respective domains of free action’ (ibid., Vol. 1, p. 107). And from this it follows, in his view, that law, liberty, and property ‘are an inseparable trinity’: ‘there can be no law in the sense of universal rules of conduct which does not determine boundaries of the domains of freedom by laying down rules that enable each to ascertain where he is free to act’ (ibid., Vol. 1, p. 107).

The freedom which is, on Hayek’s account, secured in part by the institution of private property may therefore be identified as a form of what I am calling market freedom – (partially) negative economic liberty consisting in the absence of obstacles to possible significant choices and activities, secured by a legal framework that includes formal rights of private ownership and freedom of contract. The choices and activities that are protected from obstruction by the rules of conduct identified by Hayek are significant in the sense that they involve economic activity undertaken in the pursuit of rational aims and purposes, rather than more or less random actions undertaken in the pursuit of no specific aims or purposes. But the rules of conduct in question do not favour or facilitate the pursuit of any particular rational aims and purposes, and they do not ensure that all (or indeed any) of those rationally pursuing their aims and purposes will be successful in realizing these aims and purposes.

Hayek is keen to emphasize, however, that although all individuals and groups in subscribing to these rules of just conduct thereby incur the risk of ‘unmerited failure’ in having their wants satisfied, in his view, these rules have nevertheless ‘greatly improved the chances of all to have their wants satisfied’ (ibid., Vol. 2, p. 70). It seems, then, that Hayek would have seen the strong and effective protection of market freedom as a particularly effective way in which to enhance what I have referred to above as ‘social freedom’, the real or effective opportunity to realize one’s aims and purposes. This is highlighted by Hayek’s characterization of the ‘spontaneous market order’ as a kind of ‘wealth-creating game’ in rejecting the idea of ‘social’ or ‘distributive’ justice.

The Spontaneous Market Order as a Wealth-Creating Game

Hayek identifies a given society as a ‘spontaneous order’ when the ‘rules of just conduct’ in accordance with which its members must act are not made but discovered,

either in the sense that they merely articulate already observed practices or in the sense that they are found to be required complements of the already established rules if the order which rests on them is to operate smoothly and efficiently.

(ibid., Vol. 1, p. 123)

Since law facilitates the formation of a spontaneous order of actions, it follows that law is a multi-purpose instrument, assisting the pursuit of a wide variety of human purposes, rather than serving any one particular purpose (ibid., Vol. 1, p. 113). Hayek contrasts this idea of spontaneous, endogenously created order with that of the made, exogenously created order, the artificial organization ‘which has been made by somebody putting the elements of a set in their places or directing their movements’ (ibid., Vol. 1, p. 37). It is true, Hayek concedes, that an artificial organization must, like a spontaneous order, rely to a certain extent on the members of the organization observing and obeying a number of general rules of just conduct. However, since the rules which govern an organization serve particular results aimed at by those who are in command of the organization, such rules must be ‘for the performance of assigned tasks’, and ‘are thus necessarily subsidiary to commands, filling in the gaps left by the commands’ (ibid., Vol. 1, p. 49). Unlike the rules governing a spontaneous order, therefore, the rules of organization cannot be independent of particular purposes, and must be interpreted in the light of purposes determined by commands, rather than being applicable to an unknown and indeterminable number of persons and instances and applied by individuals in the light of their respective knowledge and purposes (ibid., Vol. 1, pp. 49–50).

Hayek used this distinction between spontaneous order and artificial organization to argue that to the extent that material equality and ‘social justice’ are affirmed by a society as political objectives to be realized through legislation and central bureaucratic control, the conditions for freedom in this society will be radically undermined: the idea of ‘social justice’ can be meaningful ‘only in a directed or “command” economy (such as an army) in which the individuals are ordered what to do’ (ibid., Vol. 2, p. 69). It is important to observe, however, that although Hayek claims to be objecting here to the idea of social justice in general, what he is really objecting to is a specific conception of social justice that demands the distribution of income and wealth, in accordance with some conception of what the citizens of society can be said to deserve, on the basis of the efforts each has made in participating in the wealth-creation process. This conception of social justice was, in Hayek’s view, expressed most notably by John Stuart Mill, who stated that ‘it is universally considered just that each person should obtain that (whether good or evil) which he deserves; and unjust that he should obtain a good, or be made to undergo an evil, which he does not deserve’ (Utilitarianism, Ch. 5, p. 66, quoted in Hayek, 1982, Vol. 2, p. 63).

For Hayek, the demand for social justice understood in this sense can be satisfied only if there is ‘a power which can coordinate the efforts of the members of society with the aim of achieving a particular pattern of distribution regarded as just’ (ibid., Vol. 2, p. 64). Such coordination can only be achieved through the execution of direct commands which constitute ‘interference’ or ‘intervention’ in the market order and which will destroy the finely adjusted balance of the various actions and elements of this order (ibid., Vol. 1, p. 51). For this reason, we cannot hope to improve the results of a spontaneous order by issuing ‘specific commands that deprive its members of the possibility of using their knowledge for their purposes’ (ibid., Vol. 1, p. 51). As Hayek sees it, the market system is a particular kind of spontaneous order which is best understood as a ‘wealth-creating game’, a contest ‘played according to rules and decided by superior skill, strength, or good fortune’ which results in ‘an increase of the stream of goods and of the prospects of all participants to satisfy their needs’ (ibid., Vol. 2, p. 115). The market order serves our ends ‘by increasing the prospects or chances of every one of a greater command over the various goods (i.e. commodities and services) than we are able to secure in any other way’ (ibid., Vol. 2, p. 107). Since interfering in this ‘game’ in order to maximize particular results for particular individuals or groups will be counterproductive, we should instead make the most of an order ‘which will increase everybody’s chances as much as possible – not at every moment, but only “on the whole” and in the long run’ (ibid., Vol. 2, pp. 114–115).

By rejecting this particular principle of social justice on the basis that its satisfaction would require destructive and counterproductive intervention in the spontaneous market order, Hayek was endorsing the view that the strong protection of market freedom is the most effective way to enhance the long-term prospects of all members of society. But Hayek objected strongly to the ‘confusion’ of liberty, understood in accordance with what he referred to as its ‘original meaning’ – ‘independence of the arbitrary will of another’ – with so-called liberty as ‘effective power’ – the physical ability to do what one wants and to satisfy one’s wishes (1960, pp. 12–16). This confusion, in his view, leads inevitably to the illegitimate identification of liberty with wealth and to the attempt by socialists and left-liberals ‘to exploit all the appeal which the word “liberty” carries in the support for a demand for the redistribution of wealth’ (ibid., p. 17). Hayek would therefore certainly have objected to the association of material prosperity and effective opportunity with any idea of positive liberty. Nevertheless, it seems plausible to suggest that he would have accepted the idea that the strong and effective protection of market freedom is the most effective way in which to enhance the real and effective opportunities or capabilities of citizens to pursue their conceptions of the good – that is, to enhance what others think of as positive liberty.

However, although Hayek believed that the long-term effect of the protection of market freedom would be to enhance the substantive opportunities of all members of society, he did not endorse the absolute prioritization of market freedom, at least not in the way in which this has been endorsed by the extreme libertarian thinkers whose views I discuss in Chapter 3. Although we cannot hope to improve the results of a spontaneous order by issuing ‘specific commands’, we can, Hayek concedes, endeavour ‘to improve a spontaneous order by revising the general rules on which it rests’, and we can attempt to ‘supplement its results by the efforts of various organizations’ (ibid., Vol. 1, p. 51). Accordingly, Hayek’s vehement objections to the specific conception of social justice which he associated with Mill did not prevent him from attempting to provide a justification for a set of ‘safety net’ welfare institutions which included publicly funded education services and a comprehensive system of social insurance for the provision of health care and a minimum income. It is perfectly acceptable, Hayek believed, for the government of a free society to assure to all citizens:

protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need to descend. To enter into such an insurance against extreme misfortune may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organised community, those who cannot help themselves.

(1982, Vol. 2, p. 87)

However, while Hayek conceded that the citizens of a free society can be provided with the floor of an assured minimum income, below which nobody need descend, he insisted that the government of such a society cannot attempt to make its citizens materially equal. Hayek argued that since people are very different in their ‘individual capacities and potentialities’, it follows that if we treat people equally, ‘the result must be inequality in their actual position’ (1960, p. 87). What this means is that material equality and equality before the law ‘are in conflict with each other; and we can achieve either the one or the other, but not both at the same time’ (ibid., p. 87). Moreover, the material inequality that results from equality before the law is part of the very justification of individual liberty: ‘if the result of individual liberty did not demonstrate that some manners of living are more successful than others, much of the case for it would vanish’ (ibid., p. 85).

It might plausibly be suggested, then, that the value attached by Hayek to the protection of market freedom was more instrumental than intrinsic, with restrictions of this freedom considered justifiable to the extent that they are ‘in the interest of all’, or satisfy a ‘clear moral duty’ to assist ‘those who cannot help themselves’. Somewhat confusingly, however, Hayek explicitly rejected this line of reasoning, arguing that since the taxation which must be imposed in order to fund the government provision of welfare services can ‘be brought under the conception of general rules of conduct’, such taxation ‘would not make the private citizen in any way the object of administration; he would still be free to use his knowledge for his purposes and not have to serve the purposes of an organization’ (1982, Vol. 1, pp. 141–142). As long as a uniform minimum income is provided ‘outside the market to all those who, for any reason, are unable to earn in the market an adequate maintenance’, the provision of such an income ‘need not lead to a restriction of freedom, or conflict with the Rule of Law’ (ibid., Vol. 2, p. 87). Rather than justifying restrictions of market freedom to the extent that such restrictions are ‘in the interest of all’, or satisfy a ‘clear moral duty’ to assist those who cannot help themselves, Hayek seems to attempt to justify the government provision of welfare benefits and services on the basis that such institutions, including the imposition of the taxation needed to fund them, supplement the results of the spontaneous market order without in any way restricting the individual liberty of those pursuing their purposes within that order.

This justificatory strategy is confusing, partly because it is difficult to see how the imposition of taxation in order to fund the provision of welfare services and benefits can fail to deprive the members of the spontaneous market order of the ‘possibility of using their knowledge for their purposes’. If, using my knowledge of a particular circumstance of time and place, I decide to invest a certain amount of capital in one particular firm in order to maximize my returns, then might the imposition of taxation on my capital not prevent me from using my knowledge for my purposes to the same extent that I would have been able to do this were such taxation not imposed? If a high rate of taxation is imposed on my income or my capital, then is it not the case that many possibilities for investing in productive enterprises, and thereby using my knowledge for my purposes, will no longer be available to me? If the central virtue of the institution of private property is precisely that it secures for people the freedom to use their own knowledge in the pursuit of their own ends, then it is difficult to see how it can be said that the imposition of high rates of (proportional[10]) taxation does not amount to a restriction of freedom. Yet in stating that a private citizen on whom taxation is imposed in order to fund the provision of welfare services and benefits ‘would still be free to use his knowledge for his purposes and not have to serve the purposes of an organization’, Hayek would seem to have committed himself to just such a view.

But whether the value he attached to market freedom was intrinsic or instrumental, and however strongly he thought that this form of freedom should or should not be prioritized, it is clear that Hayek adopted what I have referred to as the orthodox conception of market freedom, which, in his view, would, if left largely unrestricted, provide the conditions for the productive and efficient economy that is essential for the successful pursuit by the members of society of their individual purposes, while at the same time generating significant (and justifiable) socio-economic inequality. As we have seen, Hayek considered the socio-economic inequality that characterizes societies in which individual liberty is strongly protected to be inextricably connected with, and indeed a necessary condition for, the economic and material progress that occurs in such societies. But in emphasizing only the conflict between material equality and liberty, Hayek, like Berlin, can be said to have overlooked the ways in which liberty and material inequality can overlap, such that the latter sometimes results from the violation, rather than the protection, of the former. From the fact that freedom and wealth are not the same, and that we cannot achieve both liberty and material equality at the same time, it does not follow that inequality can only be alleviated (as opposed to eliminated) by restricting liberty, or that ‘the penniless vagabond who lives precariously by constant improvisation’ is ‘freer than the conscripted soldier with all his security and relative comfort’ (Hayek, 1960, pp. 87–88).

In order to determine whether and to what extent inequality can be alleviated without restricting market freedom, and in order to assess the extent of the market freedom enjoyed by ‘the penniless vagabond’ relative to that enjoyed by ‘the conscripted soldier’, we need to take into consideration all the reasons why inequality arises, and we need to know something more than Hayek tells us about the reasons why the penniless vagabond is indeed a penniless vagabond. We cannot assume that inequality arises only because of considerable variations in people’s ‘individual capacities and potentialities’. And we can only assert that the penniless vagabond is indeed freer than the conscripted soldier if we have already adopted a conception of freedom that makes this assertion seem plausible. If ‘market freedom’ is assumed to consist in the minimally conditional protection of formal rights of private ownership in respect of land and natural resources as well as privately created property, then it seems plausible to suppose that the penniless vagabond might indeed be freer than the conscripted soldier, or even that he is a penniless vagabond precisely because he lives in a society in which market freedom is (perhaps excessively) strongly protected. Someone who adopts this orthodox interpretation of market freedom might then argue that the society in which the penniless vagabond lives should sacrifice a measure of market freedom for a measure of material equality (or security, or positive liberty) by, for example, providing a tax-funded welfare system which creates the conditions in which people are able to avoid being penniless vagabonds. In this way, it might be suggested, the market freedom that is not thus sacrificed can be made worthwhile and valuable for all citizens, not just for the most capable and successful.

But if, as I shall argue in later chapters, the protection of market freedom requires the strongly conditional protection of rights of private ownership in respect of land and natural resources (this being necessary for the effective minimally conditional protection of rights of private ownership in respect of privately created property), then it would seem far less plausible to suppose that a penniless vagabond is necessarily freer than a conscripted soldier: if he is a penniless vagabond because some other citizens’ rights of private ownership in respect of land and natural resources have been protected, subject only to weak conditions which exclude the socialization of the rental value of holdings of such property, then he may well be a penniless vagabond because his rights of private ownership in respect of privately created property have for this reason been violated (in ways that will be made clear in later chapters). Given this unorthodox interpretation of market freedom, a penniless vagabond may well be in the position he is in because market freedom has been violated, not because it has been excessively strongly protected. In other words, it is only by assuming that the general rules of property that are such an important feature of the spontaneous market order are in fact specifically rules that assign minimally conditional rights of private ownership in respect of both privately and non-privately created property that Hayek can be so confident in his assertion that the penniless vagabond is freer than the conscripted soldier.

Although this assertion is not one which Hayek attempts seriously to justify, it is not an entirely silent or hidden assumption. Several paragraphs of The Constitution of Liberty (a book of around 400 pages) are allotted to a discussion of the set of problems raised ‘by the fact that in the close contiguity of city living the price mechanism reflects only imperfectly the benefit or harm to others that a property owner may cause by his actions’ (Hayek, 1960, pp. 349–354, quotation at p. 349). As part of this discussion, Hayek considers the merits of what he calls ‘the “single tax” plan’ – ‘in its logic, probably the most seductive and plausible of all socialist schemes’ – which he incorrectly summarizes as a ‘scheme for the socialization of land’ equivalent to ‘transferring the ownership of all land to the community and merely leasing it at rents determined by the market to private developers’ (ibid., pp. 352–353). As we will see in Chapter 3, Henry George’s single tax proposal, which is the focus of Hayek’s argument here, was in fact the thoroughly non-socialist scheme to leave the ownership of land in private hands while socializing its rental value and relieving the burden of taxation on labour and capital. This, of course, is the most distinctive institutional feature of what I am calling unorthodox market freedom. Hayek dismisses the single tax proposal on the basis that it is, in his view,

[impossible] to distinguish clearly between the value of ‘the permanent and indestructible powers of the soil’, on the one hand, and, on the other, the value due to the two different kinds of improvements – that due to communal efforts and that due to the individual owner.

(ibid., pp. 352–353)

If it were in fact possible to draw such distinctions with any degree of certainty, then the case for the adoption of the single-tax plan would, Hayek concedes, be very strong. Since it is not possible, the proposal can be rejected.

I consider this particular objection to the socialization of rent in some detail in Chapter 3. At this stage I would like simply to draw attention to the conspicuous lack of any such detailed discussion in Hayek’s work, despite the fundamental importance of the role played by the idea of private property in his account of the free society. Hayek’s failure to recognize the significance of the question of private ownership in respect of land and natural resources is encapsulated in the final sentence of his discussion of the ‘single tax proposal’, where he laments that ‘[t]hough we might often wish that things were as simple as the single-tax program assumes, we will find in it no solution to any of the problems with which we are concerned’ (ibid., p. 353). The problems to which Hayek here refers are those relating to the difficulties of assessing the benefit or harm to others caused by the actions of individual landowners, and the associated difficulties of distinguishing between privately and non-privately created land value. The proponents of the socialization of the rental value of land, by contrast, are concerned primarily with a completely different set of problems, namely, those raised by the fact that the effective protection of rights of private ownership in respect of privately created property seems to be impossible when rights of private ownership in respect of land are protected, subject only to weak conditions which do not include the socialization of the rental value of land. On this view, the minimally conditional protection of rights of private ownership in respect of land is too conducive to ‘zero-sum games’, rewarding wealth capture as much as, or even more than, wealth creation. The socialization of rent is then proposed as the reform that will make market freedom more conducive to ‘positive-sum games’, thereby directing effort and creativity towards wealth creation and away from wealth capture.

As we will see in Chapter 3, however, it is generally recognized by the proponents of the socialization of rent that the rental value of land incorporates a certain amount of privately created value in addition to the non-privately created value that it indisputably also includes. But it is then argued that the socialization of (at least a large proportion of) the rental value of land is still the most effective way in which to ensure that the rights of private ownership in respect of privately created property are strongly protected. The question, then, is whether the indisputable difficulties involving any attempt accurately to assess the rental value of land, together with the uncertainties surrounding the precise proportion of this value that is to be socialized, fatally undermine the case for the implementation of the proposed reform. In Chapters 3 and 6, I argue that while some of these difficulties and uncertainties have not been fully appreciated by many of the proponents of the socialization of rent, the case that can be made for this reform is still a strong one. Hayek failed to engage at all with any such questions, objecting to the ‘single-tax plan’ on the basis that it would not solve the problems raised by the difficulties of distinguishing between value created by private owners and value created by the community, a set of problems of which some of the proponents of the reform in question might have been less than fully aware, but which none have ever suggested it could solve. In the next section I argue that another influential classical liberal thinker, Milton Friedman, also failed to engage fully with the issues surrounding the case for the socialization of the rental value of land.

Milton Friedman: Capitalism and Orthodox Market Freedom

Capitalism and Market Freedom

Milton Friedman’s contribution to the revival of classical liberalism in the second half of the twentieth century was arguably as influential as Hayek’s, at least in terms of its impact on public opinion in liberal democratic societies, particularly Britain and America. Friedman distinguished sharply between what he called the ‘laissez-faire’ liberalism of the nineteenth century and the ‘welfare’ liberalism of the twentieth, identifying his own views firmly with the former (1962, p. 3). Objecting to biased intellectuals who ‘tend to express contempt for what they regard as material aspects of life’, Friedman expressed his belief in the importance of ‘economic freedom, both in and of itself, and as a means towards the achievement of political freedom’ (ibid., p. 4). Economic freedom, on Friedman’s account, is the result of the ‘organization of economic activities through a largely free market and private enterprise, in short, through competitive capitalism’, developing, along with the political freedom for which it is a necessary (though not sufficient) condition, only with the emergence of free market capitalist institutions in the nineteenth century (ibid., pp. 4–5). And, like Hayek, Friedman saw the voluntary exchange that takes place in the free marketplace as a form of cooperation that facilitates the coordination of the activities of large numbers of people, and always benefits both parties to the exchange (ibid., pp. 6–7).

Like Hayek, then, Friedman endorsed a conception of market freedom, which he identified in terms of the forms of ‘private enterprise’ and ‘competitive capitalism’ that developed in the nineteenth century, and which he associated with the ideas of efficiency, productivity, and positive-sum exchanges. Friedman acknowledged that a capitalist society, which expresses the principle of ‘payment in accordance with product’ – or ‘to each according to what he and the instruments he owns produces’ – ‘can be, and in practice is, characterized by considerable inequality of income and wealth’ (ibid., pp. 161–168). But he rejected the view that the extent of these inequalities can be significantly and justifiably reduced through state intervention and the restriction of market freedom. Friedman considered it a mistake to assume, as many socialists and social justice liberals did, ‘that capitalism and free enterprise produce wider inequality than alternative systems and, as a corollary, that the extension and development of capitalism have meant increased inequality’ (ibid., p. 168). Socialist and Communist societies such as the USSR and China were, Friedman suggested, highly socio-economically unequal, even more so than some capitalist societies (1962, p. 169). But he argued that interventionist policies designed to alleviate poverty and to reduce the level of inequality that does exist in liberal societies are often counter-productive, not only in undermining economic efficiency and productivity, but also in actually making society not less but even more unequal.

With regard to progressive redistributive taxation, for example, Friedman suggested that the existence of tax loopholes makes the incidence of such taxation ‘capricious and unequal’, since people at the same economic level ‘pay very different taxes depending on the accident of the source of their income and the opportunities they have to evade the tax’ (1962, pp. 172–173). Friedman argued that the effect of minimum wage laws:

is clearly to increase poverty. The state can legislate a minimum wage rate. It can hardly require employers to hire at that minimum all who were formerly employed at wages below the minimum. It is clearly not in the interest of employers to do so. The effect of the minimum wage is therefore to make unemployment higher than it otherwise would be.

(ibid., pp. 180–181)

And Friedman claimed that other interventionist measures designed to alleviate poverty fare equally badly. The one interventionist measure which Friedman thought might be reasonably successful in alleviating poverty was the provision of a guaranteed minimum income through the implementation of a ‘negative income tax’ scheme, which would specify a certain level of income above which tax would be paid in proportion to income, and below which a subsidy would be paid in proportion to lack of income (ibid. pp. 158–160). Such a scheme would ‘operate outside the market’, make explicit the cost borne by society, and, while it would, like any other measure designed to alleviate poverty, reduce the incentives of those receiving a subsidy to help themselves, it would not eliminate that incentive entirely, since ‘an extra dollar earned always means more money available for expenditure’ (ibid., p. 158).

Like Hayek, then, Friedman was not opposed to the utilization of institutions external to the free market in order to raise the condition of the poorest in society up to a minimum level, although, again like Hayek, he considered socio-economic inequality to be a desirable and unavoidable result of free competitive economic activity, which, in the long run, benefits all members of society. And like Hayek, Friedman was not concerned to question the interpretation of the idea of market freedom upon which his support for classical liberal non-interventionist policies was based. That the conventional and commonly accepted meanings of ideas like ‘private enterprise’, ‘competitive capitalism’, and the ‘free market’ might be examined and challenged, and that more internally consistent and defensible interpretations of these ideas might provide the basis for socio-economic reforms that would both reduce inequality and improve efficiency and productivity, seems not to have occurred to Friedman, or at least not to have been worth investigating. By identifying ‘market freedom’ in terms of the supposedly ‘efficient’, ‘positive-sum’ forms of private enterprise and ‘competitive capitalism’ that developed in the nineteenth century, Friedman indicated very clearly that he saw this form of freedom as consisting primarily of the minimally conditional protection of formal rights of private ownership in respect of both privately and non-privately created property, which could be limited by minor restrictions, if this was thought to be necessary, in order to allow the provision of public goods and of a decent minimal standard of living for the poorest members of society.

Friedman’s Endorsement of Land Value Taxation

This summary of Friedman’s contribution to classical liberal thought is consistent with his well-known expression of support for ‘the property tax on the unimproved value of land’, which he described as ‘the least bad tax’ (2014). These remarks notwithstanding, Friedman distanced himself from the ‘Georgist movement’ on the basis that, while he agreed that property taxes, particularly those levied on land rather than improvements, ‘at some levels may be preferable to other kinds of taxes’, he disagreed with what he saw as the ‘basic fundamental view’ of the movement, which was ‘that property taxes should absorb essentially the whole rent of the land, leaving the market value of the land itself essentially zero, and that the revenue from that source should be the sole source for governmental expenditure’ (1970). Friedman gave two reasons for his disagreement with these two ‘fundamental premises’ of Georgism. First, he argued that since land can be ‘produced’ and its qualities improved through ‘investment’, it follows that what Ricardo had called ‘the original and indestructible qualities of the land’ by no means account for all of the rental value of land (Friedman, 1970). To tax ‘the whole of the yield from improving the productivity of land or from producing the land’, would be to remove any incentive for people to make the investments through which land can be produced and its qualities enhanced (ibid.). He then argued that since ‘there are many other resources, of which human labour is one of the most important’, which are limited in supply, it follows that the imposition of some level of tax on the return from these resources ‘is unlikely to affect the amount of such services made available for market use’ (ibid.). As examples of such resources, Friedman cited ‘the skill of Muhammad Ali or of a Frank Sinatra’: although these resources are ‘natural resources’ that derive their value from their scarcity, ‘incentive effects would complicate any attempt to have anything approaching a 100 percent tax on the site value of such skills, to use George’s terms’ (1970).

What Friedman seems to have thought, then, is that although there are reasons why the property tax on the unimproved value of land is the least worst tax, there are also reasons why this tax should not be set at anywhere near the level of 100 per cent of the rental value of land, as well as reasons why taxes imposed on the value of other ‘resources’ in limited supply, such as scarce natural talents and abilities, are also some of the least worst taxes, and therefore appropriate sources of public revenue. In Chapter 3, I argue that although Friedman’s objections to what he calls the two ‘fundamental premises’ of the ‘Georgist movement’ are not entirely without any force, they do not constitute powerful criticisms of the case for the socialization of rent, or for the more general geo-classical liberal approach developed in this book. In the first place, we will see that the two ‘fundamental premises’ of Georgism that Friedman identifies are not in fact as fundamental to the geo-classical approach as Friedman’s remarks suggest: the market democratic, property-owning democracy model outlined in Chapter 6 is much more flexible than some of the positions taken by Henry George might seem to be. And, second, I shall argue that the arguments that Friedman advances against these premises are in any case nothing like as clear or as strong as he evidently thought them to be.

Here I would like simply to suggest that the brevity of Friedman’s criticisms of the idea of the socialization of rent, together with his refusal to provide a detailed discussion of the issues in question, indicate that he failed to recognize the full significance of these issues with regard to the proper specification of the idea of market freedom. Friedman’s description of even a relatively low level of a tax (significantly less than 100 per cent) levied on the value of land as ‘bad’ (albeit ‘the least bad’) confirms rather than undermines the claim that he was a champion of what I have called orthodox market freedom. As we will see, for those who endorse an unorthodox conception of market freedom, the socialization of rent is positively good, a necessary condition for the full and effective protection of rights of private ownership in respect of privately created property. On this view, the principle of ‘payment in accordance with product’ which Friedman endorsed is satisfied much more effectively through the minimally conditional protection of rights of private ownership only in respect of privately created property, rather than through the minimally conditional protection of rights of private ownership in respect of both privately and non-privately created property. It is not surprising, then, that Friedman’s name is just as strongly associated with the ideology of ‘neo-liberalism’, and with the so-called ‘free market fundamentalism’ that has been gaining ground around the world since the late 1970s, as that of Hayek.

Richard Epstein: Orthodox Market Freedom Explicitly but Inadequately Defended

The Functional Case for Orthodox Market Freedom

Richard Epstein is a classical liberal thinker who has made some sort of attempt to defend the orthodox classical liberal conception of market freedom. Epstein is a legal and political theorist, whose work is steeped in and heavily influenced by both the natural rights and utilitarian branches of the classical liberal tradition. Through detailed analyses of cases at the three levels of common, legislative, and constitutional law, Epstein has constructed a powerful argument in support of the view that the most efficient and effective way in which to ensure that social cooperation benefits all who participate in it as much as possible, is to restrict the exercise of power by the state to the pursuit of two, and only two, ends: first, to prevent private aggression against certain pre-political individual rights, including rights of private ownership which exist independently of and prior to the state; and, second, to secure the provision of a range of public goods which, due to transaction costs and hold-out/ free-rider problems, voluntary transactions alone would not secure (1985, pp. 3–6). Epstein argues that this view is clearly and strongly expressed in the so-called ‘Takings’ or eminent domain clause of the Fifth Amendment to the United States Constitution – ‘nor shall private property be taken for public use, without just compensation’ – which, in his view, renders unconstitutional most of the progressive interventionist redistributive and regulatory reforms implemented in America from the 1930s (Epstein, 1985).

Epstein argues that the systematic application of the ‘Takings’ clause:

has very powerful functional roots: while conceptions of social utility are hard to state and to identify, the society which adheres to the demands of the eminent domain clause will find itself better able to obtain prosperity for all of its members than one which deviates from this principle.

(1986, p. 3)

The Takings clause operates by allowing ‘those forced exchanges that enhance the welfare of individuals who have been subject to the exchange, and to prohibit the use of state power in ways that works [sic] to the net detriment of some individuals’ (ibid., p. 5). In operating in this way, there is inherent in the clause a presupposition that prior to any welfare-enhancing ‘forced exchanges’ (for example, through compulsory purchase of land for the construction of roads or other infrastructure), there exists a just distribution of holdings of private property which cannot justifiably be interfered with in ways that do not benefit private owners in proportion to the value of the holdings that they own prior to any interference (forced exchanges) (Epstein, 1985, pp. 4–12; 1986, p. 7).

This presupposition is illustrated by Epstein in the form of what he calls the ‘Two Pies’ metaphor, which depicts an ‘inner pie’ that consists in the pre-interference distribution of property holdings, and an ‘outer pie’ that consists in the gains or surplus that can be created by allowing forced exchanges that benefit those who are forced to exchange a portion of their holding (1985, pp. 3–5). The ‘inner pie’ of pre-interference ‘original entitlements’ must be presumed to exist as a result of the ‘natural’ acquisition by ‘first possession’ of property holdings, an observation ‘that leads to the common law proposition that “possession is the root of title” ’ (Epstein, 1986, p. 7). The functional justification for this ‘rule of first possession’ is that when, as a result of the application of the rule, property rights become well defined,

nonowners (who still own their labour) receive enhanced opportunities to gain from exchange. What is lost to late-comers from the world of acquisition is provided for in the world of trade and commerce for the betterment of those who did not acquire anything from the original commons.

(Epstein, 1985, p. 11)

The original entitlements that are generated by application of the first possession rule are therefore protected by tax-funded centralized state power from the violence and disorder that would otherwise render them unstable, as well as being enhanced by further forced exchanges that are designed to overcome the holdout, coordination, and collective action problems that would otherwise prevent these enhancements.

What the eminent domain clause does not allow, Epstein argues, are forced exchanges that take the form of ‘coerced transfer systems, including those designed to aid the poor and the needy’ (1985, pp. 306–331; 1986, p. 18).[11] Such transfers are raised from taxes ‘under circumstances where it is most unlikely that there is any equivalent return benefit to the parties who are taxed’, and these taxes are therefore ‘outside the power of the state to impose, except insofar as is strictly necessary to forestall the use of private force or political revolution’ (Epstein, 1986, p. 18). The functional justification for this ‘straightforward doctrinal implication’ of the eminent domain clause is that ‘there is no reason to believe that forced systems of wealth transfer will ever be an effective means to alleviate poverty within the social system at large, no matter how noble the end’ (ibid., p. 18). This is because such transfers:

reduce the incentive of all persons to produce. The successful find that much of their gains are taxed away from them, while the poor find that their energies are better devoted to the acquisition of transfer payments than to the creation of real wealth.

(ibid., p. 18)

For these reasons, ‘laissez-faire’ should be understood ‘not as an effort to glorify the individual at the expense of society, but as the embodiment of principles that, when consistently applied, will work to the advantage of all (or almost all) members of society simultaneously’ (Epstein, 1998, p. 2).

Like Hayek and Friedman, then, Epstein identifies the strong protection of a form of market freedom as the most effective way in which to generate prosperity for all members of society – to promote what others think of as positive liberty (and what I am calling social freedom). But unlike classical liberals such as Hayek and Friedman, Epstein is consistent in rejecting (at least as a matter of ‘first principle’) arguments in favour of progressive interventionist redistributive and regulatory institutional mechanisms that place restrictions on the rights of private ownership and freedom of contract – the market freedom – of some in order to improve the opportunities and prospects of the poorest in society. And unlike Hayek and Friedman, Epstein provides both a clear account of the conception of market freedom to which he is committed, as well as a justification of his commitment to this particular conception. To the question ‘What does anyone get by acquiring ownership by taking first possession?’ Epstein’s answer is the ‘traditional one’, that is, that ‘one gets the full bundle of rights, both in the physical domain (earth to sky), and all the standard incidents of ownership – possession, use, and disposition’ (1986, p. 8). Not surprisingly, the explanation for this traditional answer is a functional one:

[l]inking rights of possession, use, and disposition into a single bundle of rights offers powerful utilitarian advantages. More complex schemes only lead to indefinite specifications of the original rights, which in turn hamper the coordinated use and transfer of all resources.

(Epstein, 1985, p. 61)

Epstein acknowledges that one might question whether the first possessor of an area of land should receive outright ownership of the land, rather than merely a lien for any labour expended, and that one might wonder what should be done with the ‘unearned increment, however small, that nature has supplied’ (1998, p. 26). But he argues that to treat the unearned increment as a common-pool asset ‘necessarily imposes extensive administrative costs: first, to measure the size of the increment in each case; and, then, to assign its value to all other persons, none of whom have any specific claim to the thing in question’ (ibid., p. 27).

Since assessments and reassignments will ‘reduce the total value of the stock in question, and quickly undermine the willingness of individuals to incur the costs of discovery and appropriation in the first instance’, we are all better off in the long run

if the surplus in things remains well defined with a single owner, than if each and every owner surrenders some of what he has acquired in exchange for the right to some portion of the surplus of lands acquired by others.

(ibid., p. 27)

The eminent domain clause therefore secures the minimally conditional protection of the rights of private ownership in respect of land as well as privately created property, with private owners required to pay only those taxes which are likely to provide them with an equivalent return benefit.

Like Friedman’s criticisms of a high level of tax levied on the rental value of land, Epstein’s arguments in favour of the protection of the right to outright ownership of land, and against treating the ‘unearned increment’ as a common-pool asset, are not entirely without force, and cannot be ignored by proponents of the socialization of rent. However, like Friedman, Epstein did not provide a sufficiently detailed discussion of the relevant issues, and, as we will see in Chapter 3, his arguments do not provide strong support for the orthodox interpretation of market freedom and do not undermine the case for the socialization of the rental value of land. And, like Hayek and Friedman, Epstein seems to have been unaware of the full significance of the question whether the value of land should be socialized or privately appropriated, focusing his attention on what we will see is the relatively less important idea of the ‘unearned increment, however small, that nature has supplied’, rather than the more important idea of the potentially extremely large unearned increment that consists in socially created land value.

Conclusion

I have argued in this chapter that the principal proponents of modern mainstream classical liberalism have largely failed to recognize the interpretative flexibility and internal complexity of the idea of market freedom, and have failed adequately to justify, and sometimes even to question, the specific interpretation of this form of freedom that is either implicitly or explicitly endorsed in their work. Isaiah Berlin failed to consider whether and how the idea of negative liberty might be (and has been) perverted and distorted as much as the idea of positive liberty undoubtedly has been, and consequently he over-exaggerated the conflict and under-emphasized the common ground between negative liberty and other social values and ideals. Friedrich Hayek, Milton Friedman, and Richard Epstein failed either to recognize the significance of their orthodox interpretations of market freedom or adequately to defend these interpretations, justifying their views with only the most cursory consideration of the relevant issues. In Chapter 2, I argue that while social liberals have been much more critical of the idea of market freedom than classical liberals, they have typically objected to the idea of the prioritization of the market freedom in general, rather than to the specific conception of this form of freedom adopted by the classical liberals.

Notes

1

As we will see in Chapter 3, radical libertarians come closer to assigning absolute priority to the private economic liberties.

2

I say ‘largely’ because as we will see in Chapter 2, some social liberals (most notably J. S. Mill and L. T. Hobhouse) have expressed views which might be construed as objections to the orthodox conception of market freedom.

3

It is true that Berlin at one point seems to accept that poverty and deprivation might indeed constitute a violation of negative liberty, rather than merely the absence of the conditions in which liberty may be exercised, or the violation of some other value. He concedes that since unrestricted laissez-faire has itself resulted in violations of negative liberty, ‘the case for social legislation or planning, for the welfare state and socialism, can be constructed with as much validity from considerations of the claims of negative liberty as from those of its positive brother’ (Berlin, 1969, pp. xlv–xlvi). However, as C. B. Macpherson has noted, Berlin did not see the need to alter the text of the ‘Two Concepts’ lecture on this point, and swiftly returns to emphasizing the destructive impact of laissez-faire on the conditions of negative liberty, and the importance of distinguishing between liberty and the conditions of its exercise (Macpherson, 1973, p. 102, n. 10).

4

As Macpherson puts it, ‘if there were no laws to protect individuals against direct invasion by others, there would be no liberty (in Berlin’s sense), i.e. no area in which anyone was secure from interference or domination’ (ibid., p. 117). And as Philip Pettit argues, Berlin follows the republican tradition ‘in recognizing that it is legal conventions, not metaphysical rights, that determine the range of choices in which people are to be equally protected’ (2011, p. 712).

5

For Bentham, liberty ‘is an idea purely negative. It is not any thing that is produced by positive Law. It exists without Law, and not by means of Law’ (University College London, Bentham MS box 69, fo. 44, cited in Long, 1977, 74).

[A person] has freedom of property – understood as a positive liberty – if she actually owns and controls some property. Bill Gates and I both have the negative liberty to own a yacht, but only Gates can afford a yacht. He has the power to do something I cannot, and in that respect, he is more free.

(2010a, n.p.)

7

Schmidtz and Brennan, for example, seek to dispel what they call ‘The Big Myth about Liberty’ – that negative liberty is the special concern of classical liberals and libertarians, while positive liberty is the special concern of Marxists, socialists, and modern liberals – by arguing that negative liberty is a ‘highly effective, if imperfect’ way of promoting ‘positive liberty’, which they define as ‘the power or capacity to do as one chooses, or the power to act autonomously’ (ibid.). See also Schmidtz and Brennan (2010b).

8

Tully suggests that one of Berlin’s main concerns in his ‘Two Concepts’ lecture was to ‘purge liberty and liberalism of any overlap with social democracy’ (2013, p. 28). However, this idea sits uneasily with Berlin’s emphasis on the need for compromise between negative liberty and other values (Berlin, 1969, pp. liii, 123–126), and with his description of Roosevelt’s New Deal as a ‘great liberal enterprise … certainly the most constructive compromise between individual liberty and economic security which our own time has witnessed’ (ibid., p. 31).

9

This line of argument may also be contrasted with the view expressed recently by Alex Gourevitch, who argues, with Cohen, that if freedom means the absence of interference, then poverty limits not merely the worth or value of freedom, but freedom itself, since money ‘is just about the only way to remove legal obstacles to goods’ (2015, p. 373).

10

Hayek argued that even if progressive taxation

does not name the individuals to be taxed at a higher rate, it discriminates by introducing a distinction which aims at shifting the burden from those who determine the rates onto others. In no sense can a progressive scale of taxation be regarded as a general rule applicable equally to all.

(Hayek, 1960, p. 314)

11

It should be noted that Epstein does acknowledge that this important implication of his interpretation of the Takings clause

proceeds only as a matter of first principle, as it seems clear that the heavy reliance on interests upon existing transfer systems makes it quite impossible to root them out as a constitutional matter, or even to want to do so.

(Epstein, 1986, p. 18; see also Epstein, 1985, pp. 324–329)

It is equally important to note, however, that Epstein does not accept that ‘reliance interests’ can ever be so strong as to rule out the implementation of remedies that are designed to return society (eventually) to limited government: the proper response to the complexities of existing, highly interventionist transfer systems is ‘to be sensitive in selecting and sequencing remedies; it is not to abandon the enterprise of undoing past error’ (Epstein, 1985, p. 327).

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2 Social Liberalism and the Rejection of Market Freedom

Introduction

We have seen in the previous chapter that classical liberals attach a high degree of importance – both intrinsic and instrumental – to the protection of what I have called ‘market freedom’, the form of freedom secured through the protection of formal (rather than substantive) rights of private ownership and freedom of contract. This chapter highlights the ways in which the classical liberal attitude to orthodox market freedom has and has not been criticized from within the tradition of social liberalism that began to emerge in the second half of the nineteenth century. It is argued that the social liberal critique of market freedom has largely taken the form of a rejection of the idea of the prioritization of the formal rights of private ownership and freedom of contract that secure market freedom. The right to private property – in the formal sense in which this right has been understood by classical liberals – is regarded by social liberals as less fundamental than the formal civil and political rights and liberties, and only instrumentally valuable to the extent that its protection enhances the substantive opportunities and capabilities of citizens to pursue their conceptions of the good. And although some classical liberals appear also to value market freedom only for its instrumental importance in enhancing citizens’ substantive opportunities and capabilities, social liberals have typically been far more willing than classical liberals to endorse restrictions of market freedom on this basis.

What we do not find in (twentieth-century) social liberalism, however, is any attempt to challenge the orthodox classical liberal understanding of market freedom in order to reinterpret and restate this idea rather than marginalize and de-prioritize it. Like the classical liberals, social liberals have tended to assume that market freedom consists of the minimally conditional protection of formal rights to private ownership in respect of both privately and non-privately created income and wealth, and that the significant socio-economic inequalities that are generated by the strong protection of these rights can be mitigated only by restricting these rights. The idea that market freedom requires the strongly conditional protection of the rights of private ownership that apply in respect of non-privately created property, and that socio-economic inequality might be mitigated by enhancing rather than restricting the protection of this form of freedom, has not been explored by social liberals. Indeed, contemporary social liberals are more inclined to reject the idea that there is any such thing as ‘market freedom’ than to look for a more adequate understanding of what this form of freedom consists of.

In the first part of the chapter I discuss the critical and revisionist attitude to classical liberal thought and practice expressed from the mid-nineteenth to the early twentieth centuries in the work of J. S. Mill, T. H. Green, and L. T. Hobhouse. I argue that, although the ‘New Liberalism’ developed by these thinkers contained the seeds from which an internal critique of the orthodox classical liberal conception of market freedom might have been constructed, it also incorporated ideas and arguments which have provided support for the case in favour of the restriction of market freedom. It was the second set of ideas and arguments, I suggest, which had the strongest impact on the development of social liberal political thought and practice in the twentieth century. Thus, the New Liberalism provided an important part of the philosophical basis for the rise in the twentieth century of the institutions of the welfare state and the progressive taxation needed to fund them, but was less successful in contributing to the development of a new conception of market freedom, and in identifying and fostering the development of the institutions which would be needed to strengthen the protection of this form of freedom.

I then turn to the post-Second World War period of what has come to be known as ‘high’ social liberalism – expressed most notably in the work of John Rawls – from which a more powerful and sophisticated philosophical basis for social and economic institutions that restrict market freedom has been developed. From this theoretical perspective, the de-prioritization of market freedom has come to be seen as essential to the realization of the values of democratic legitimacy and free and equal citizenship, which are the values that are thought to make the formal civil and political rights and liberties (to which both classical and social liberals are committed) so fundamentally important. And social liberals have developed new ideas for socio-economic reforms – based on the ‘property-owning democracy’ and ‘liberal socialism’ institutional models – that must, in their view, supplement (and partially replace) the institutions of twentieth-century welfare state capitalism, widely regarded as being unable fully to satisfy the demands of social and political justice as entailed by the values of democratic legitimacy and free and equal citizenship. In the final section, I discuss how some of the high liberal arguments in favour of the deprioritization of market freedom have been used to question the very coherence of the idea of market freedom.

In later chapters I shall argue that the failure to explore the possibility of providing a plausible alternative conception of the idea of market freedom has had (and continues to have) a major impact on the kinds of institutional mechanisms and reforms that social liberals have proposed and endorsed. Although the more recently proposed ‘property-owning democracy’ and ‘liberal socialism’ institutional models have been developed partly as alternatives to the more traditional, social democratic welfare state, I argue in Chapters 5 and 6 that the central institutions of these models are no less ‘interventionist’ – no less restrictive of market freedom – than those of the social democratic welfare state. What this means, I shall argue, is that the social liberal emphasis on restricting and de-prioritizing market freedom has impeded the development and elaboration within this tradition of effective solutions to the problems generated by the ideas and institutions of orthodox classical liberalism.

The ‘New Liberalism’

John Stuart Mill

The tradition of social liberalism emerged in response to social problems perceived to have been generated by the organization of nineteenth-century British socio-economic institutions in accordance with classical liberal principles, particularly those concerning the protection of what I referred to in Chapter 1 as orthodox market freedom. It began to emerge as a distinct branch of the liberal tradition from the middle of the nineteenth century, most notably in the work of John Stuart Mill. When we consider his remarks on the question of the justice of the institution of private property it is not difficult to see why one might say of Mill, as Hobhouse did early in the twentieth century, that ‘in his single person he spans the interval between the old and the new Liberalism’ (1994 [1911], p. 51). Though in On Liberty (1974 [1859]), Mill expressed his strong commitment to individual liberty and to the classical liberal formal civil rights and liberties by which this value is in part secured, he was also prepared, particularly in his Principles of Political Economy (1909 [1848]), to consider the possibility of implementing radical reforms concerning the structure of property relations and the distribution of private property holdings, if such reforms could be shown to be justifiable on the basis of considerations of utility.

Mill assessed various (pre-Marxian) forms of socialism and communism in terms of their feasibility and compatibility with liberty and individuality (both of which he regarded as essential to utility), and was strikingly emphatic in expressing his support for these forms of organization, at least if the only alternative was the system of private ownership as it existed in the nineteenth century:

The restraints of Communism would be freedom in comparison with the present condition of the majority of the human race. The generality of labourers in this, and most other countries, have as little choice of occupation or freedom of locomotion, are practically as dependent on fixed rules and on the will of others, as they could be on any system short of actual slavery.

(ibid., Bk II, Ch. 1, Sec. 16)

In Mill’s view, this lack of freedom for the majority of citizens of industrialized societies justified radical reforms of the classical liberal system of private property, reforms which would result either in the abolition of private ownership of land and capital, or, what he considered much more likely (and certainly necessary in the short to medium term), ‘not the subversion of the system of individual property, but the improvement of it, and the full participation of every member of the community in its benefits’ (ibid., Bk II, Ch. 1, Sec. 25). Ultimately, Mill argued, the aim of social reform was ‘to secure to all persons complete independence and freedom of action, subject to no restriction but that of not doing injury to others’ – and the choice between a (radically reformed) system of private ownership and a system based on some sort of public or common ownership would therefore ‘probably depend mainly on one consideration, viz. which of the two systems is consistent with the greatest amount of human liberty and spontaneity’ (ibid., Bk II, Ch. 1, Sec. 18).

One major aspect of the system of private property, which, in Mill’s view, would have to be reformed in order to remove the need for the subversion of this system was the set of laws regulating the ownership of land. The ‘laws of property’, Mill stated, ‘have never yet conformed to the principles on which the justification of private property rests. They have made property of things which never ought to be property, and absolute property where only a qualified property ought to exist’ (ibid., Bk II, Ch. 1, Sec. 16).

Properly understood, Mill argued, the institution of private property consisted in

the recognition, in each person, of a right to the exclusive disposal of what he or she have produced by their own exertions, or received either by gift or by fair agreement, without force or fraud, from those who produced it. The foundation of the whole is the right of producers to what they themselves have produced.

(ibid., Bk II, Ch. 2, Sec. 2)

And what Mill thought this meant was that rights of private ownership which take the form of a ‘guarantee to individuals of the fruits of their own labour and abstinence’ (ibid., Bk II, Ch. 1, Sec. 17) did not apply to land, since ‘the raw material of the earth’ is not the produce of labour:

When the ‘sacredness of property’ is talked of, it should always be remembered, that any such sacredness does not belong in the same degree to landed property. No man made the land. It is the original inheritance of the whole species.

(ibid., Bk II, Ch. 2, Sec. 26)

Moreover, Mill recognized that land was economically significant in a way in which other forms of property were not, arguing that while it is ‘no hardship to any one to be excluded from what others have produced’, it is some considerable hardship

to be born into the world and to find all nature’s gifts previously engrossed, and no place left for the new-comer. To reconcile people to this … it will always be necessary to convince them that the exclusive appropriation is good for mankind on the whole, themselves included.

(ibid., Bk II, Ch. 2, Sec. 26)

For these reasons, Mill argued, the private appropriation of land ‘is wholly a question of general expediency. When private property in land is not expedient, it is unjust’ (ibid., Bk II, Ch. 2, Sec. 26).

Thus, in Mill’s remarks on the question of the justice of the institution of private property, we find at least some of the elements of what in Chapter 3 I shall call a geo-classical critique of the orthodox classical liberal conception of market freedom. On the geo-classical view described in Chapter 3, it is indeed, as Mill suggests, a considerable hardship ‘to be born into the world and to find all nature’s gifts previously engrossed’, given the importance of ‘nature’s gifts’ to productive activity of any kind. And on this view, the private appropriation of what has not been privately created (the rental value of land) results in the violation of the rights of private ownership that apply in respect of what has been privately created. Primarily for these reasons, the geo-classical view is that the effective protection of market freedom requires that stronger conditions be attached to the rights of private ownership that apply in respect of land than those that are attached to the rights of ownership that apply in respect of privately created property.

Further elements of this geo-classical view can be found in some of Mill’s remarks on the issue of rent and its taxation. Suppose, Mill said, that there is a kind of income which constantly tends to increase without any exertion or sacrifice on the part of the owners. In such a case:

it would be no violation of the principles on which private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class.

(ibid., Bk V, Ch. 2, Sec. 27)

And the rent of land, Mill stated, was just such a form of income:

The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches?

(ibid., Bk V, Ch. 2, Sec. 28)

For these reasons, Mill argued, it would be justifiable to impose a special tax on future increases in rent (though not on the present value of all land, which should be exempt from such a tax) (ibid., Bk V, Ch. 2, Sec. 29).

But although it is possible to discern in Mill’s remarks on property some of the elements of a geo-classical critique of orthodox market freedom, other crucial elements of such a critique are not present, and those that are present are hidden and obscured by other aspects which point in the direction of the social liberal critique of market freedom that developed in the twentieth century. One crucial element that is missing from Mill’s view is a recognition of the importance of some form of private ownership that applies in respect of land. On the geo-classical view, it is not that land cannot justifiably be privately owned, but rather that the private ownership of land – which is both socially expedient and essential to the protection of market freedom – must be more strongly conditional than the private ownership of privately created property. On Mill’s view, since the appropriation of land was ‘wholly a matter of general expediency’, any claims to the private ownership of land were therefore ‘subordinate to the general policy of the state’ (ibid., Bk II, Ch. 2, Sec. 27). And this, Mill argued, meant that, subject to an important proviso which we will come to shortly,

the state is at liberty to deal with landed property as the general interests of the community may require, even to the extent, if it so happen, of doing with the whole, what is done with a part whenever a bill is passed for a railroad or a new street.

(ibid., Bk II, Ch. 2, Sec. 27)

In other words, land could be compulsorily purchased, and thereby nationalized, if this was required by the ‘general interests of the community’ or the ‘general policy of the state’. This is in sharp contrast to the geo-classical approach to the question of property in land, which emphasizes the importance of the protection of rights of private ownership – such as those of exclusive use and possession – in respect of land, and the socialization only of the rental value thereof. On this view, it is precisely the socialization of the rental value of land that makes its exclusive ownership ‘good for mankind on the whole’, thereby reconciling those excluded from such ownership to their situation. The form of ownership that applies in respect of land is therefore ‘qualified’, in the sense that the rights of private landowners in respect of the holdings of land that each owns – the rights of exclusive possession, security of tenure, and so on – are protected, subject to the condition that each private owner is required to compensate all those excluded from these holdings by contributing to the community the rental value of the holdings that each owns.

A further aspect of Mill’s view concerning the institution of private property that obscures and is indeed entirely incompatible with the geo-classical approach is his insistence on the proviso to which the power of the state either to nationalize land or to socialize future increases in rent would be subject. Although the ‘principle of property’ gave landowners no right to the exclusive private ownership of land, it did apparently give them a right to ‘compensation for whatever portion of their interest in the land it may be the policy of the state to deprive them of’ (ibid., Bk II, Ch. 2, Sec. 27). The claim of landowners to such compensation was ‘indefeasible’, since it was due no less to landowners than to the owners of any other form of property recognized by the state that ‘they should not be dispossessed of it without receiving its pecuniary value, or an annual income equal to what they derived from it’ (ibid., Bk II, Ch. 2, Sec. 27). Thus, even if it is only the future increase rather than the full value of rent that is to be socialized, any such measure would be justifiable to landlords only if ‘the present market-price of their land were secured to them’ (ibid., Bk V, Ch. 2, Sec. 29).

Quite apart from the question of the consistency of such a proviso with his account of ‘the general principles on which property rests’, Mill’s solution to the problem of ‘inexpedient’ private landownership – to nationalize the land or socialize future increases in its rental value, and then to compensate the owners in proportion to the market value of their land – is completely at odds with the geo-classical approach to the question of private property in land. On the geo-classical view, it is precisely the protection of landowners’ rights of private ownership in respect of the holdings of land that they own which compensates them for their lack of a right to the rental value of these holdings, and for the obligation to pay tax in proportion to this rental value. Thus, in return for the payment of rent to the community, landowners receive the protection by the state of their rights to the exclusive use and control of the sites, the rent for which they are paying, for as long as they choose (and are able) to do so; and in return for granting landowners rights of exclusive use and control in respect of specific holdings of land, the community receives compensation equal to the rental value of these sites.

As we will see in Chapter 3, on this geo-classical view, the socialization of rent ensures not only that all citizens share in the value of what no individual citizens have produced, but also that all citizens have effective rights of private ownership in relation to the privately created property that each produces or freely obtains. Such a scheme is therefore a central feature of any commitment to market freedom. But on this view, if land itself is nationalized, then citizens’ rights of private ownership in respect of privately created property cannot be made meaningful and effective. And, no less importantly, if private landowners are compensated for relinquishing their rights to the rental value of their lands, then this means in effect that the rental value of these lands cannot be socialized, since the payments of compensation will cost as much as the revenue generated by the socialization of rent. Citizens would then be deprived of their share of the value of what no individual citizen has produced, and their rights of private ownership in respect of privately created property would be ineffectively protected.

In the light of these considerations, it is not surprising that commentators on Mill’s political and economic thought have emphasized those aspects of his view which point in the direction of the more familiar social liberal critique of market freedom that developed in the twentieth century (Freeman, 2011). One such aspect is Mill’s attitude to the right of bequest. This right Mill identified as one of the key attributes of the institution of private property, since

the ownership of a thing cannot be looked upon as complete without the power of bestowing it, at death or during life, at the owner’s pleasure: and all the reasons, which recommend that private property should exist, recommend pro tanto this extension of it.

(1909 [1859], Bk II, Ch. 2, Sec. 17)

However, he then immediately went on to state that like ‘all other proprietary rights, and even in a greater degree than most, the power of bequest may be so exercised as to conflict with the permanent interests of the human race’ (ibid., Bk II, Ch. 2, Sec. 17). Even ‘the simplest exercise of the right of bequest, that of determining the person to whom property shall pass immediately on the death of the testator’, might therefore justifiably be restricted, should this be considered necessary in order to promote ‘the permanent interests of the human race’ (ibid., Bk II, Ch. 2, Sec. 17). In particular, Mill suggested, it might be justifiable to restrict ‘not what any one might bequeath, but what any one should be permitted to acquire, by bequest or inheritance’ (ibid., Bk II, Ch. 2, Sec. 18).

The point here is that, although there might be very good arguments in favour of the kinds of limitations of the right of bequest proposed by Mill, such limitations – which, in his view, might justifiably be imposed on other rights of ownership as well as that of bequest – constitute a restriction of market freedom, however conceived, rather than, as with the geo-classical proposal of the socialization of rent, an attempt to strengthen the protection of this form of freedom. Mill’s view was that no form of private ownership need necessarily apply in respect of land, and that only a qualified form of private ownership should apply in respect of privately created property. The geo-classical view is that only a qualified form of private ownership should apply in respect of land, and that something much closer to absolute private ownership should apply in respect of privately created property.

As we will see later in this chapter, it was Mill’s acceptance of the need to restrict market freedom that was most influential (at least in the long run) in shaping the development of the tradition of social liberalism, rather than his view that future increases of rent should be socialized. Mill’s account of the ways in which the rights of inheritance and bequest might justifiably be restricted is strikingly similar to the reforms of the taxation of inherited wealth typically proposed by contemporary social liberals (Meade, 1964; O’Neill, 2007; Prabhakar et al., 2008). Despite its geo-classical elements, then, Mill’s political and economic thought may be identified much more strongly with the tradition of social liberalism that developed during the twentieth century than with the geo-classical ideas and arguments with which it can also be associated. Ultimately, as John Tomasi has put it, the liberal principles expressed in Mill’s work ‘do not necessarily lead to a society grounded in strong private rights of property and to a government of limited economic power’ (2012, p. 31).

Thomas Hill Green

The construction of a case for the restriction of rights of private ownership and freedom of contract became a strong theme in the development of social liberalism, and was an important aspect of the new liberalism expressed in the work of Thomas Hill Green. Green famously defended a positive conception of liberty, an ‘ideal of true freedom’ conceived as ‘the maximum of power for all members of human society alike to make the best of themselves’ (1991, p. 23). On Green’s account, such freedom is to be understood as ‘a positive power or capacity of doing or enjoying something worth doing or enjoying’, which ‘each man exercises through the help or security given him by his fellow-men, and which he in turn helps to secure for them’ (ibid., p. 21). It is clear, Green thought, that the ‘freedom’ of the wandering savage is in reality not true freedom: only by submitting to the restraint of society can people become free, since only by thus submitting can people secure ‘the full exercise of the faculties with which man is endowed’ (ibid., p. 22).

But in what sort of society would the ‘freedom’ experienced by the members of this society be the true freedom described by Green? In Green’s view, the true freedom can be experienced and secured only in a society based on the right to private property and freedom of contract and trade, since, by protecting these rights, society secures for everyone ‘the power of getting and keeping the means of realising a will’ (1999 [1895], p. 169). Unlike Mill, Green never accepted the idea that the abolition of the institution of private property might one day be consistent with, and even a requirement of, the priority assigned by liberals to the value of liberty. However, like Mill, Green strongly objected to the manner in which the institution of private property had actually developed in Britain, and in other European societies. Although in these societies citizens have rights of property in the sense that all have the formal legal right to obtain property, in Green’s view,

great numbers in fact cannot have it in that sense in which alone it is of value, viz. as a permanent apparatus for carrying out a plan of life, for expressing ideas of what is beautiful, or giving effect to benevolent wishes.

(ibid., p. 168)

Although such people have rights of appropriation ‘in the eye of the law’, in fact ‘they have not the chance of providing means for a free moral life, of developing and giving reality or expression to a good will’ (ibid., p. 168). And for this reason, Green argued, the right to private property should be understood to mean more than merely the formal legal right to appropriate, since a man:

who possesses nothing but his powers of labour and who has to sell these to a capitalist for bare daily maintenance, might as well, in respect of the ethical purposes which the possession of property should serve, be denied rights of property altogether.

(ibid., p. 168)

Thus, although the exercise of the power of obtaining and keeping the means of realizing a will should as far as possible be uncontrolled, the control of this power is justifiable and necessary ‘when the possession of property by one man interferes with the possession of property by another’, and ‘when one set of men are secured in the power of getting and keeping the means of realising their will, in such a way that others are practically denied the power’ (ibid., p. 169).

One way in which Green thought that rights of private ownership might be restricted was in the form of the control of private property in land, partly because land, unlike capital, is strictly limited in supply. Landlords, Green observes:

have been allowed to do what they would with their own, as if land were merely like so much capital, admitting of indefinite extension. The capital gained by one is not taken from another, but one man cannot acquire more land without others having less.

(ibid., p. 175)

Because land is a resource, limited in extent, ‘from which alone can be derived the materials necessary to any industry whatever, on which men must find houseroom if they are to find it at all, and over which they must pass in communicating with each other’, Green thought it necessary for the state to exercise ‘social control over the exercise of rights of property’ in this resource (ibid., pp. 176–177). Like Mill, Green argued that the private appropriation of ‘the gifts of nature’ could be justified only on the grounds of social expediency, or ‘social well-being’ (ibid., pp. 174–175).

In Green’s account of the institution of private property as it relates to land, there are then at least some of the elements of the geo-classical view: the institution of private property is essential to the freedom ‘of doing what one will with one’s own’; no one should be ‘secured in the power of getting and keeping the means of realising their will, in such a way that others are practically denied the power’; land being ‘limited in extent’, a resource ‘from which alone can be derived the materials necessary to any industry whatever’, it follows that full private ownership of this resource by some will be likely to deny others the power of obtaining property; therefore, ownership of this resource should be less than fully private.

But Green rejected the geo-classical solution to the problem of private property in land on the grounds of practical feasibility and social expediency:

To the proposal that the ‘unearned increment’ in the value of the soil, as distinct from value produced by expenditure of labour and capital, should be appropriated by the state, though fair enough in itself, the great objection is that the relation between earned and unearned increment is so complicated, that a system of appropriating the latter to the state could scarcely be established without lessening the stimulus to the individual to make the most of the land, and thus ultimately lessening its serviceableness to society.

(ibid., p. 177)

Like Mill, then, Green emphasized the importance of restricting rights of private ownership in respect of land, but did not endorse the geo-classical solution of restricting only the right to private appropriation of the rental value of land. Green acknowledged that rights of bequest, though essential to private ownership, might justifiably be restricted if it turned out to be necessary to break the power of the ‘great estates’ by ‘a law of equal inheritance’ of the kind that existed in France (ibid., pp. 176–177). More radically, he emphasized ‘the restraints which the public interest requires to be placed on the use of land if individual property in it is to be allowed at all’, and the need to prevent landlords from using land in ways that make it ‘unserviceable to the wants of men’ (ibid., pp. 174–175). And like Mill, Green emphasized the need to restrict not only the rights of private ownership that apply in respect of land, but also those that apply in respect of privately created property. Freedom of contract might justifiably be restricted ‘in order to prevent labour from being sold under conditions which make it impossible for the person selling it ever to become a free contributor to social good in any form’ (Green, 1991, p. 24). Thus, laws that regulate the sanitary conditions of factories, workshops, and mines were, in his view, justifiable, as were laws prohibiting ‘the purchase or hire of unwholesome dwellings’ and ‘the labour of women and young persons beyond certain hours’ (ibid., p. 24).

The rejection of the prioritization of market freedom that is implicit in Green’s work is therefore primarily a rejection of the extent of market freedom, rather than a rejection of the particular (orthodox) form of market freedom that consists in the minimally conditional protection of rights of private ownership that apply as much in respect of land as of privately created property. The protection of ‘true freedom’ was, in his view, dependent on the restriction of the right of private property in general, rather than on the restriction specifically of the right to the private appropriation of the rental value of land. And it was by appealing to the value of a strongly ‘positive’ conception of freedom that Green constructed his case for the restriction of market freedom. What I shall argue later in this chapter is that one of the ‘positive’ aspects of Green’s conception of freedom came to be incorporated into a conception of freedom – which I shall refer to as ‘social freedom’ – which is less strongly positive than Green’s conception but more strongly positive than market freedom. This conception of social freedom is one to which later social liberals have appealed in opposing the prioritization of market freedom.

As David Miller (1991, p. 10) observes, Green’s positive conception of freedom consists of three separate elements: freedom is (1) a positive power or capacity (2) of doing or enjoying something worth doing or enjoying that (3) we do or enjoy in common with others. It is in respect of the first aspect of Green’s conception that social freedom and market freedom may be distinguished most sharply. As we saw in Chapter 1, market freedom – whether orthodox or unorthodox – consists in the protection of rights of private ownership in respect of both privately and non-privately created property, with different conditions attached to the protection of any such rights that apply in respect of non-privately created property, depending on whether the conception of market freedom in question is orthodox or unorthodox. Individuals are free, in this sense, insofar as they enjoy formal legal rights to pursue their conceptions of the good by creating or legitimately acquiring holdings of private property, and by engaging freely in mutually beneficial exchanges with other individuals, who have created or legitimately acquired holdings of private property. This form of freedom is restricted when rights of private ownership and freedom of contract are restricted, and it is secured when these rights are effectively protected, even if this means that some citizens are effectively unable to acquire any holdings of private property, and do not succeed in doing so.

As we will see later in this chapter, the conception of freedom to which later social liberals have typically appealed contrasts sharply with this conception of market freedom in the sense that it consists not of the formal legal opportunity to create or acquire holdings of private property and thereby to pursue a conception of the good, but rather of some kind of substantive opportunity, power, or capacity to pursue a conception of the good. The formal legal rights of private ownership and freedom of contract are important to this conception of freedom only to the extent that their protection ensures that all citizens have access to sufficient material resources, and these rights may be restricted to the extent that this is considered necessary to secure sufficient access. And as we saw in Chapter 1, many classical liberals appeal implicitly to a conception of social freedom as well as to one of market freedom – even if the use of the word ‘freedom’ in respect of the former is strongly resisted – and regard the latter as instrumentally important for the promotion of the former. As we will see in Chapter 4, tensions within classical liberal thought arise when intrinsic value is attached to market freedom in and of itself, but also when the full and uncompromising protection of this form of freedom is nevertheless thought to conflict with the creation of substantive opportunities for all citizens to pursue their conceptions of the good.

With these contrasting conceptions of freedom in mind, we can identify classical liberals as those (libertarians such as Robert Nozick (1974)), who are committed to the protection of orthodox market freedom for its own sake, and are unwilling to countenance any restrictions of this freedom, as well as those (such as Friedrich Hayek (1982 [1973]), Milton Friedman (1962), and Richard Epstein (1985)) for whom market freedom is primarily of instrumental importance, its protection being necessary in order to maximize the holdings of private property acquired by the least well-off citizens, and thereby to maximize their substantive opportunities or utility. The idea of freedom as substantive opportunity or capacity is therefore essential to (non-libertarian) classical liberals as well as to social liberals: the former depend on this idea in assigning instrumental importance to market freedom, while the latter depend on this idea in emphasizing the importance of restricting market freedom. Thus, the idea of substantive power or capacity that is central to Green’s positive conception of freedom became an important aspect of both classical and social liberalism in the twentieth century. Green’s willingness to countenance the restriction of rights of private ownership in respect of privately created property on the basis of considerations relating to this idea of substantive opportunity was reflected in the emphasis placed by later social liberals on the restriction of market freedom, rather than the stronger protection of a more genuine kind of market freedom.

Leonard Trelawny Hobhouse

In the work of Leonard Trelawny Hobhouse we find both a more positive endorsement of the geo-classical approach to the question of private property in land, and a powerful case for the restriction of market freedom. In respect of the latter, Hobhouse argued that socio-economic inequality in a liberal society could be justified only on the basis of considerations relating to the common good – founded on ‘free scope for the development of personality in each member of the community’ – and not on the basis of considerations relating to the interests of any one individual or group (1994 [1911], p. 62). Thus:

if the existence of millionaires on the one hand and of paupers on the other is just, it must be because such contrasts are the result of an economic system which upon the whole works out for the common good, the good of the pauper being included therein as well as the good of the millionaire.

(ibid., p. 63)

It was, in Hobhouse’s view, an essential part of the function of the state ‘to secure the conditions upon which mind and character may develop themselves’ – that is, to secure the material conditions within which ‘citizens are able to win by their own efforts all that is necessary to a full civic efficiency’ (ibid., p. 76). Thus, although Hobhouse did not think that the state could be held responsible for feeding, housing, and clothing people, he did think that it could and should be held responsible for ensuring ‘that economic conditions are such that the normal man who is not defective in mind or body or will can by useful labour feed, house, and clothe himself and his family’ (ibid., p. 76).

Hobhouse was keen to emphasize that a society in which these economic conditions are absent should be seen as a defective society which suffers from ‘economic malorganization’: individual workers cannot be held responsible for the ups and downs of industries and markets, cannot be expected to ‘put the machine straight’, and therefore should not have to shoulder the burdens of poverty and unemployment that result from such malorganization (ibid., pp. 76–77). It was for this reason a matter of justice, rather than charity, to ensure that the economic conditions necessary for maintaining a civilized standard of life for all do in fact obtain (ibid., p. 77). For Hobhouse, then, the right to work and the right to a ‘living wage’ are ‘integral conditions of a good social order’, no less valid and important than the formal rights of private property and freedom of the person championed by the classical liberals (ibid., p. 77). There was therefore a reciprocal obligation between the individual and the state such that while the individual has a duty of ‘industriously working for himself and his family’, society in return owes to each individual the means of maintaining a ‘civilized standard of life’, a debt which is ‘not adequately discharged by leaving him to secure such wages as he can in the higgling of the market’ (ibid., pp. 78–79). Partly on the basis of these considerations, Hobhouse endorsed the imposition of taxes on inherited wealth and on income derived from speculation in the stock market, and a ‘super tax’ on very high incomes, in order to fund unemployment and health insurance for the poor, free public education, old age pensions, and a guaranteed ‘living wage’ for all workers (ibid., pp. 96–100).

The elements of a social liberal case for the restriction of market freedom are therefore plain to see in Hobhouse’s account of the New Liberalism. Inequalities in the distribution of income and wealth were, in his view, justifiable only to the extent that such inequalities are for the good of all, including those with the least property and access to material resources. Restrictions of market freedom were, therefore, needed in order to create the economic conditions in which ‘the free and unimpeded development of personality in each member of the community’ could be secured, and in which a ‘civilized standard of life’ could be assured for all citizens.

But the elements of a quite different kind of critique of market freedom, which is separable from and independent of the case for its restriction outlined above, are also clear and apparent in Hobhouse’s work. Hobhouse was keen to highlight what he saw as an important distinction between property which is ‘personal’ or ‘individual’ in origin, and property which is ‘social’ in origin. It seemed clear to Hobhouse that the central function of taxation should be ‘to secure to society the element in wealth that is of social origin, or, more broadly, all that does not owe its origin to the efforts of living individuals’ (ibid., p. 97). When taxation fulfils this function, Hobhouse argued:

[I]t is clear that this is no case of robbing Peter to pay Paul. Peter is not robbed. Apart from the tax it is he who would be robbing the State. A tax which enables the State to secure a certain share of social value is not something deducted from that which the taxpayer has an unlimited right to call his own, but rather a repayment of something which was all along due to society.

(ibid., p. 97)

In order to achieve this aim – the aim of securing to society the element of wealth that is of social origin – it would be justifiable and necessary ‘to shift taxation step by step from the wealth due to individual enterprise to the wealth that depends on its own collective progress, thus by degrees regaining the ownership of the fruits of its own collective work’ (ibid., p. 93).

Hobhouse recognized that the rental value of land is one major form of wealth which is of ‘social origin’, ground rents ‘in and about cities’ being, in his view, ‘substantially the creation of society’:

The value of a site in London is something due essentially to London, not to the land-lord. More accurately a part of it is due to London, a part to the British empire, a part, perhaps we should say, to Western civilization. But while it would be impossible to disentangle these subsidiary factors, the main point that the entire increment of value is due to one social factor or another is sufficiently clear, and this explains why Liberal opinion has fastened on the conception of site value as being by right communal and not personal property.

(ibid., pp. 90–93)

The distinction between privately created and non-privately created property upon which the geo-classical critique of orthodox market freedom is grounded is therefore clearly implicit in Hobhouse’s account of the new liberalism: if land value is of social origin, rather than ‘that which the taxpayer has an unlimited right to call his own’, and if the taxation of this value therefore cannot be identified as a deduction from the property of those on whom this taxation is imposed, then this form of taxation cannot be characterized as a restriction of market freedom, since no rights of private ownership would be infringed by such taxation. Indeed, far from ‘robbing Peter to pay Paul’, the taxation of the rental value of land is necessary to ensure that Peter does not rob society by privately appropriating the land value which is rightfully the property of society. And, by implication, property that is not of social origin (that is, privately or ‘individually’ created property) does constitute that which people have a right to call their own (even if this right must be balanced against other rights and may therefore be subject to legitimate restriction).

The geo-classical critique of orthodox market freedom was therefore in some respects much more strongly endorsed in the work of Hobhouse than in that of Mill or Green. But Hobhouse’s conception of socially created property was much wider than any conception that could be incorporated into a geo-classical critique of orthodox market freedom. On Hobhouse’s account, property is social not only in the sense that ‘it is the organized force of society that maintains the rights of owners by protecting them against thieves and depradators’, but also in the broader sense that the machinery, technology, knowledge, and general ‘human apparatus’ that individual producers use in creating wealth constitute a ‘gift of acquired civilization’ – they are all methods and conditions of production which ‘have been built up by the collective effort of generations of men of science and organizers of industry’, resulting in this way from ‘the general progress of the world’ (ibid., p. 92). Thus,

[Society] provides conditions or opportunities of which one man will make much better use than another, and the use to which they are put is the individual or personal element in production which is the basis of the personal claim to reward.

(ibid., p. 92)

As we will see in Chapter 3, this conception of socially created property is much broader than the geo-classical conception of socially created property and may be used to justify institutional mechanisms that are identifiable from a geo-classical perspective as restrictions of market freedom. Hobhouse himself thought that both a rapidly increasing surtax on incomes above a certain level and a tax on inherited wealth would help to fulfil the function of securing for society the element of wealth that is of social origin, and that the imposition of such taxation would for this reason be unlikely to discourage any service of genuine social value or diminish the supply of capital (ibid., pp. 95–97). From the geo-classical perspective (for reasons which will be discussed in Chapters 5 and 6), while such mechanisms need not necessarily be identified as unjustifiable or socio-economically counter-productive, they can nevertheless be identified as mechanisms that may restrict market freedom – from this perspective, inherited property and property generated by (certain kinds of[1]) speculative investment is no less ‘privately created’ than property that is owned by the person directly responsible for its creation.

Thus, while Hobhouse recognized that the rental value of land is socially created, he did not identify this value as the only, or even the primary, form of socially created value, nor did he seek to highlight reasons why the socialization of this specific source of value might be thought to be particularly socially beneficial, more beneficial than the socialization of other sources of value. And while he identified the central function of taxation as the socialization of socially created property, he also constructed a powerful case for the restriction of rights of private ownership that apply in respect of what a geo-classical liberal would identify as privately created property. As we will see in the remainder of this chapter, it was these aspects of the New Liberalism which were reflected most strongly in the development of social liberal theory and practice in the second half of the twentieth century.

Social Liberalism and the De-Prioritization of Market Freedom

The Idea of Social Cooperation

In the 1950s and 1960s, the American political philosopher John Rawls published a series of papers in which he attempted to develop a systematic and sophisticated ‘contractarian’ theory of political justice as an alternative to the utilitarian tradition, which had been the principal philosophical basis of liberal political thought since the late eighteenth century. This resulted in the publication in 1971 of A Theory of Justice, in which Rawls attempted to modernize the social contract theory expressed in the work of Hobbes, Locke, Rousseau, and Kant (1999 [1971], pp. xvii–xviii). In rejecting the utilitarian account of a just society Rawls developed two main lines of criticism. First, he targeted the utilitarian aim of maximizing the overall good in society, which, in his view, would justify sacrificing the good of vulnerable minorities, and which he considered to be inconsistent with basic ideas and moral intuitions deeply embedded in the institutions and ‘public political consciousness’ of liberal democratic societies (ibid., pp. 3–30). Second, Rawls objected to the ideas of happiness, welfare, preference satisfaction, and so on, in terms of which utilitarian thinkers interpreted the good that in their view should be maximized. For Rawls, such ideas failed to account for the true ‘fundamental interests’ of the ‘free and equal’ citizens of liberal democratic societies (ibid., pp. 474–480).

As an alternative to the various ideas of the good presented by utilitarian thinkers, Rawls proposed a conception of ‘primary social goods’ that he identified as being essential to the protection of the fundamental interests of citizens in the development and exercise of their ‘powers of moral personality’ (ibid., pp. 78–81). A just society would, Rawls argued, provide equal access to these primary social goods for all citizens, unless an unequal distribution could be expected to result in even greater access to these goods for the least advantaged members of society than would be made possible by an equal distribution (ibid., pp. 52–57). Rawls constructed a political conception of justice – which he called ‘justice as fairness’ – in which these claims were defended and elaborated.

The choice between justice as fairness and some version of the principle of utility was, in Rawls’s view, a reflection of the contrast between two ideas of society which have a prominent place in the history of liberal democratic thought – the idea of society as ‘a fair system of cooperation between free and equal citizens’, and the idea of society as ‘a social system organized so as to produce the most good summed over all its members’ (2001, p. 95). Rawls thought that the main practical aim of political philosophy – the attempt to uncover ‘some underlying basis of philosophical and moral agreement’ on a range of ‘deeply disputed questions’ – could only be achieved by using one or the other of these contrasting conceptions of society in constructing the principles of justice in accordance with which basic social and economic institutions are to be regulated (ibid., pp. 2–5). This was the case primarily because of what Rawls referred to as ‘the fact of reasonable pluralism’ – the fact that in a modern liberal democratic society ‘citizens affirm different, and indeed incommensurable and irreconcilable, though reasonable, comprehensive doctrines in the light of which they understand their conceptions of the good’ (ibid., p. 84). In Rawls’s view, this pluralism must be assumed to be a permanent feature of any liberal democratic society,[2] a feature which cannot be eliminated except by the oppressive use of state power to silence dissent and to establish a particular comprehensive doctrine (ibid., p. 84).

Because the two ideas of society reflected in the contrast between the social contract and utilitarian traditions were both part of the ‘public political culture of a democratic society’, familiar from ‘the traditions of interpretation of its constitution and basic laws’, these ‘central organizing ideas’ might have some chance of providing the basis of philosophical and moral agreement on deeply disputed questions, such as those concerning the claims of liberty and equality (ibid., p. 5). And of these two ideas of society, it was the idea of a fair system of social cooperation that seemed to Rawls to be likely to generate the most coherent and compelling philosophical and moral basis for liberal democratic institutions, the most effective reconciliation of the claims of liberty and equality, and a conception of political justice that would ‘prove acceptable on due reflection’ (ibid., p. 5).

Social cooperation, as conceived by Rawls, was not simply efficiently coordinated behaviour (as in the case of prisoners forced to work on a chain gang), but rather cooperation between persons who hold a conception of their own good and who engage in cooperation in order to advance this conception of their good, in accordance with the terms of cooperation and publicly recognized rules and procedures which each participant can reasonably be expected to accept as fair and appropriate (ibid., p. 6). The fundamental idea of society as a fair system of cooperation as defined by Rawls therefore includes the complementary ideas of the ‘reasonable’ – referring to persons ‘who are ready to propose, or to acknowledge when proposed by others, the principles needed to specify what can be seen by all as fair terms of cooperation’ – and the ‘rational’ – referring to the advantage gained by persons engaging in social cooperation (ibid., pp. 6–7).

From the ideas of the reasonable and the rational, Rawls then derived the idea of free and equal persons. The basis of this idea is that to regard persons as capable of engaging in social cooperation over a complete life is to regard them as having what Rawls refers to as the two ‘moral powers’: (1) the capacity for a sense of justice, which is the capacity to understand, to apply, and to act from (and not merely in accordance with) the principles of political justice that specify the fair terms of social cooperation; and (2) the capacity for a conception of the good, which is the capacity to have, to revise, and rationally to pursue a conception of the good (ibid., pp. 18–19). In addition to these two capacities, persons also have at any given time a determinate conception of the good, understood broadly to include a conception of what is valuable in human life, which they aim to realize. Such conceptions are not fixed but form and develop as they mature, and may change more or less radically over the course of life (Rawls, 1996, p. 20).

The important idea of primary social goods – which provides content to the idea of rational advantage, the good that those engaged in social cooperation are seeking to advance – was itself derived from the idea of free and equal citizenship. Rawls identified five kinds of primary goods: (1) the basic civil and political rights and liberties; (2) freedom of movement and free choice of occupation against a background of diverse opportunities; (3) powers and prerogatives of offices and positions of authority and responsibility; (4) income and wealth; and (5) the social bases of self-respect (which are necessary for citizens ‘to have a lively sense of their worth as persons and to be able to advance their ends with self-confidence’) (2001, pp. 58–59). These primary goods constitute the various social conditions and all-purpose means that are generally necessary to enable citizens adequately to develop and fully exercise their two moral powers of rationality and reasonableness, and to pursue the determinate conceptions of the good that they affirm at any given time (ibid., p. 57).

Thus, by focusing on the idea of society as a fair system of social cooperation and drawing out its various ‘companion ideas’, Rawls was able to highlight the sense in which the citizens of a liberal society might be thought to have fundamental interests in the maintenance of the conditions adequate for the development and exercise of their moral powers and for the effective pursuit of their conception of the good, these interests to be secured by the principles of justice through the distribution of the primary goods necessary for their protection. A society effectively regulated by such a conception of justice constitutes what Rawls calls a ‘well-ordered society’ – a society in which citizens have a normally effective sense of justice that enables them to understand and apply the publicly recognized principles of justice, and in which everyone therefore accepts, and knows that everyone else accepts, the same political conception of justice (ibid., pp. 8–9).

The Priority of Liberty and the Rejection of the Prioritization of Market Freedom

But how exactly are these principles of justice to be determined and specified? It is in the way in which this question is answered by justice as fairness that Rawls’s theory becomes most strongly contractarian in character. On Rawls’s contractarian account, the fair terms of cooperation which are to regulate the basic structure of a well-ordered society are determined and specified by an agreement reached by those engaged in social cooperation, under conditions that are fair for all (ibid., pp. 14–15). In order to generate an agreement reached under conditions that are fair for all, it is necessary to specify a point of view removed from and not distorted by the particular features and circumstances of the existing basic structure. These conditions must therefore ‘eliminate the bargaining advantages that inevitably arise over time within any society as a result of cumulative social and historical tendencies’ (ibid., pp. 15–16).

This unbiased point of view is specified by the theoretical device of the ‘original position’. Situated in the original position behind a ‘veil of ignorance’, the parties to the agreement concerning the principles of justice know nothing of the particular social positions or comprehensive doctrines of the persons they represent, or of their race and ethnic group, sex, or various native endowments such as strength and intelligence. The veil of ignorance ‘limits the parties to the same body of general facts (the presently accepted facts of social theory) and to the same information about the general circumstances of society – that it exists under the ‘circumstances of justice’ (in the absence of which justice is either unnecessary or inapplicable), and that ‘reasonably favourable conditions’ making a constitutional democracy possible obtain (ibid., p. 87). Knowing nothing about the particular interests of the persons they represent, but nevertheless motivated to secure their good, the parties refer to the primary goods in order to reach an agreement on the specification of the fair terms of cooperation that determine the content of the principles of justice.

An important aspect of Rawls’s account of the primary goods is that not all of these goods are equally important or fundamental to the members of a well-ordered society. For reasons which will be considered in detail in Chapter 4, Rawls argues that of the five kinds of primary social goods identified above, the first and second of these (the basic civil and political rights and liberties, and freedom of movement and free choice of occupation) would be regarded by the parties in the original position as being essential conditions for the protection of the more important of the fundamental interests of those they represent – their ‘highest-order’ interests – while the remainder of the primary goods would not be so regarded (ibid., p. 45). Because they consider these basic rights and liberties to be essential conditions for the protection of citizens’ highest-order interests – which override all of their other interests – the parties in the original position would assign these rights and liberties priority over the other primary goods. The substantive content of justice as fairness therefore consists of two principles of justice, the first of which secures the basic rights and liberties and is assigned priority over the second (which then regulates the distribution of the remaining primary goods). This is the feature of justice as fairness known as the priority of liberty.

What this priority means is that none of the rights and liberties protected by the first principle of justice can be traded off or balanced against greater access to any of the primary goods, whose distribution is regulated by the second principle. The political liberties, for example, ‘cannot be denied to certain groups on the grounds that their having these liberties may enable them to block policies needed for economic growth and efficiency’ (ibid., p. 295). This would be the case even if the additional social and economic advantages gained from higher economic growth and efficiency were distributed to the greatest benefit of the groups to whom the political liberties were denied. Another important feature of the first principle of justice is the incorporation in this principle of the guarantee of the ‘fair value’ of the political liberties. Rawls thought that the political liberties were different from the other basic rights and liberties insofar as there would always be limited space in the political arena for citizens to exercise their rights to stand for public office and put items on the political agenda. For this reason, the political liberties in his view deserved special protection, such that the worth of these liberties to all citizens, whatever their economic or social position, ‘must be sufficiently equal in the sense that all have a fair opportunity to hold public office and to affect the outcome of elections, and the like’ (ibid., p. 149). Just how Rawls thought that this fair value guarantee might be secured we will consider shortly.

Rawls’s second principle of justice is itself split into two parts, with the first part prioritized over the second. The first part, the fair equality of opportunity (FEO) principle, requires ‘not merely that public offices and social positions be open in the formal sense, but that all should have a fair chance to attain them’ (ibid., p. 44). What the FEO principle requires is that differences in citizens’ opportunities to attain public offices and social positions should reflect differences in natural abilities and willingness to make an effort, rather than differences in social class of origin (at least insofar as achieving this objective is consistent with the first principle of justice, which has priority). In a well-ordered society, then, there must be ‘roughly the same prospects of culture and achievement for those similarly motivated and endowed’ (ibid., p. 44).

The second part of the second principle of justice – the so-called ‘difference principle’ – requires that inequalities in income and wealth, powers and prerogatives of office, and the social bases of self-respect result over time in a greater bundle of these primary social goods for the least advantaged members of society, which then maximizes the worth for these citizens of the basic rights and liberties protected by the first principle of justice (ibid., p. 65). In this way, Rawls argued, citizens’ naturally varying talents and abilities can be exercised so that all members of society benefit from the social cooperation in which they engage: the more naturally talented and gifted members of society benefit through the exercise of their talents and abilities by receiving a larger share of social and economic advantages than those less naturally gifted; while the least talented benefit by becoming better off than they would have been if the more talented had not been motivated to exercise their talents productively.

These principles with their priority rules constitute most of the substantive content of justice as fairness. Since rights to private property and freedom of contract are not considered by Rawls to be essential institutional conditions for the protection of citizens’ highest-order interests (ibid., p. 114), market freedom is therefore not protected by the first principle of justice and its priority over the second. This means that unlike the civil and political rights and liberties, rights of private ownership and freedom of contract can be restricted and traded off for greater social and economic advantages for the worst-off members of society, if it is thought that such restrictions and trade-offs would or do in fact benefit the least advantaged citizens. And as we will see shortly, Rawls thought that significant restrictions of rights of private ownership and freedom of contract are indeed often necessary in order to make the distribution of social and economic advantages to the greatest benefit of the least advantaged members of society.

In A Theory of Justice, and then much more clearly and explicitly in his later restatement of justice as fairness, Rawls distinguished between two forms of socio-economic organization, which he called ‘welfare state capitalism’ (WSC) and ‘property-owning democracy’ (POD). WSC and POD are both committed, to varying degrees, to free-market institutions and a substantial degree of private ownership, but differ in the central aims and values that are embodied and promoted in their institutions, the extent of the social and economic inequalities that each form of organization permits, and the means by which these inequalities are to be restricted. The institutions of WSC are grounded within a utilitarian theoretical framework that is not fully compatible with the idea of society as a fair system of cooperation between free and equal citizens. These institutions are designed to achieve much more limited aims than those of the POD, consisting mainly in the provision of ‘safety-net’ protections against accident and misfortune, and in setting a minimum standard of life, a ‘floor’ below which no citizen should be allowed to fall (Rawls, 1999 [1971], p. xv; 2001, pp. 137–138).

The more limited aims embodied in the institutions of WSC mean that societies organized in accordance with this socio-economic model would allow large and inheritable inequalities in the distribution of wealth, as well as significant inequalities in the initial distribution of property and skill endowments. The ‘social minimum’ that would be specified in such a society would be secured through a redistribution of the income generated from inequitable initial distributions of endowments of human and non-human capital, and would fall far short of the social minimum that would be secured in a society that took the form of a POD (Rawls, 1999 [1971], p. xv; 2001, p. 139). The institutions of WSC would therefore fail to secure the basic political liberties (protected by the fair value guarantee of the first principle of justice), fair equality of opportunity (covered by the first part of the second principle of justice), and a fully adequate social minimum (guaranteed by the second part of the second principle of justice) (Rawls, 1999 [1971] p. xv; 2001, p. 139).

In contrast, the central aims and values embodied in and promoted by the institutions of the POD are those expressed by the idea of society as a fair scheme of cooperation over time among citizens conceived as free and equal persons, and by the principles of justice that emerge from this idea of fair social cooperation (Rawls, 1999 [1971] p. xv; 2001, pp. 137–138). Rawls argued that what these values and principles demand is that the institutions of the basic structure of society ‘disperse the ownership of wealth and capital’, and thus ‘prevent a small part of society from controlling the economy and indirectly political life itself’ (1999 [1971], pp. xiv– xv): both the difference principle and the fair opportunity principle require that the ownership of wealth and capital (including human capital) is broadly dispersed, so that even the least advantaged members of society benefit from the institution of private property and enjoy opportunities commensurate with their natural talents and abilities; and the special protection assigned to the right to political participation requires that the political process be protected from the private economic power generated by large concentrations of privately owned wealth and capital.

The institutions of the POD therefore strongly restrict the extent of socio-economic inequality in a just society, not so much through redistributive taxation imposed on very high incomes, but more through the implementation of measures designed to broaden the distribution of the wealth and capital from which incomes are derived in the first place. In a POD, formal rights of private ownership are not protected by the priority of liberty and can be restricted to whatever extent is thought necessary to satisfy the demands of the second principle of justice. Rawls also endorsed an institutional model – which he called ‘liberal socialism’ – which was even less accommodating to private ownership than the POD model, requiring the democratic organization of large businesses, and public ownership and control of the means of production. In his view, the choice between POD and liberal socialism was not a matter of basic political justice, and could instead be ‘left to be settled by historical conditions and the traditions, institutions, and social forces of each country’ (ibid., pp. xv–xvi).

The Idea of Social Freedom

In the social liberal tradition as developed in the work of Rawls, citizens are conceived, not as happiness maximizers, but as social beings endowed with the moral powers of rationality and reasonableness – as moral agents with fundamental interests in developing and exercising their moral capacities and pursuing the conceptions of the good that these capacities enable them to form and revise. Conceived in this way, citizens are considered to have rights to the substantive opportunities and capabilities that are generated by access to material resources, even if these rights are not as fundamental as the civil and political rights and liberties covered by Rawls’s first principle of justice. On this view, unlike the basic civil and political rights and liberties, formal rights of private ownership and freedom of contract are valuable only insofar as their protection is necessary in order to provide the least advantaged members of society with additional resources and opportunities with which to develop their moral powers and pursue their conceptions of the good.

If the protection of formal rights of private ownership secures what I have referred to as ‘market freedom’, then the protection of rights to substantive opportunities and capabilities may be said to secure what I shall refer to as ‘social freedom’. Unlike market freedom, this conception of freedom incorporates the idea of substantive power or capacity that forms an important part of the positive conception of freedom developed by Green. As we have seen, market freedom consists of the creation, through the protection of rights of private property and freedom of contract, of formal, legal opportunities that enable citizens to create by and for themselves the substantive opportunities that they need to pursue their conceptions of the good (or to maximize their happiness or welfare). Through the protection of market freedom, citizens are assured of the substantive opportunity to pursue a conception of the good only to the extent that they are capable of acquiring, or fortunate enough to be able to acquire, holdings of property that can be exchanged freely with those of other citizens in order to generate these substantive opportunities.

Social freedom, by contrast, consists in the creation, if necessary through state intervention in the activities of citizens exercising their market freedom, of the substantive opportunities for all citizens to pursue their conceptions of the good, even those who are unsuccessful in acquiring sufficient holdings of property through the exercise of their formal, legal rights of private ownership and freedom of contract. The citizens of a Rawlsian well-ordered society are free in the sense that ‘they regard themselves as self-authenticating sources of valid claims’, which is to say that they regard themselves as being entitled to make claims on basic social and economic institutions so as to advance their conceptions of the good (provided these conceptions fall within the range permitted by the public conception of justice) (Rawls, 2001, p. 23). In such a society, citizens are assured of the greatest substantive opportunity to pursue a conception of the good that is compatible with the priority that is assigned to the basic civil and political rights and liberties.

The so-called ‘capabilities approach’, developed most notably in the work of Amartya Sen, provides another clear example of a conception of justice that incorporates a commitment to social freedom. Like Rawls, Sen rejects the utilitarian approach to political justice, citing the ‘distributional indifference’ tendency of the utilitarian calculus to ignore inequalities in the distribution of happiness, to neglect rights, freedoms, and other non-utility concerns, and to construe individual well-being in such a way that the calculus can easily be influenced or swayed by mental conditioning and adaptive attitudes (1999, p. 62). But Sen also rejects the primary goods approach adopted by Rawls, since in his view this approach fails to take account of ‘the relevant personal characteristics that govern the conversion of primary goods into the person’s ability to promote her ends’, and will therefore fail adequately to safeguard and promote ‘the individual’s real opportunity to pursue her objectives’ (ibid., p. 74).

Instead of utility or primary goods as the metric of justice, Sen uses the ideas of ‘functionings’ and ‘capabilities’. The notion of functionings ‘reflects the various things a person may value doing or being’, and ‘may vary from elementary ones, such as being adequately nourished and being free from avoidable disease, to very complex activities or personal states, such as being able to take part in the life of the community and having self-respect’ (ibid., p. 75). The notion of ‘capability’ refers to the alternative combinations of functionings that are feasible for a person to achieve, and is therefore ‘a kind of freedom: the substantive freedom to achieve alternative functioning combinations (or, less formally put, the freedom to achieve various lifestyles)’ (ibid., p. 75). Citizens are free in this sense to the extent that they enjoy capabilities to achieve a range of functioning combinations, and less free to the extent that they lack such capabilities. And market freedom is valuable insofar as it both generates capabilities and distributes them equitably: although Sen acknowledges the efficiency of the market mechanism in the creation of individual freedoms, he also argues that the demands of ‘distributional equity’ require that the ‘far-reaching powers of the market mechanism have to be supplemented by the creation of basic social opportunities for social equity and justice’ (ibid., p. 143).

Thus, in the work of two of the most important figures of twentieth-century social liberalism the idea of market freedom was supplanted by the idea of social freedom, and was de-prioritized and relegated to a subordinate position relative to the basic civil and political rights and liberties. In the next section we will see how some of the arguments that support the de-prioritization of market freedom have been used to construct a case against the very coherence of the idea of ‘market freedom’.

The Social Liberal Rejection of the Very Idea of ‘Market Freedom’

Moral Desert as an Inappropriate Criterion for the Distribution of Property

We saw in Chapter 1 that classical liberals sometimes attach instrumental rather than intrinsic importance to the protection of market freedom, which they see as an essential condition for the creation of substantive opportunities for all citizens to pursue their conceptions of the good (even if some object to the use of the word ‘freedom’ in respect of these substantive opportunities). Partly for this reason, classical liberals typically endorse far fewer and less severe restrictions of rights of private ownership and freedom of contract than the proponents of justice as fairness and other social liberal conceptions of justice. We will see in Chapter 3 that libertarian forms of classical liberalism value market freedom not primarily as an instrumentally important condition for the creation of substantive opportunity (though libertarians do regard market freedom as highly important in this regard), but as an intrinsically important fundamental value which gives expression to the fundamental principle of self-ownership. On this view, market freedom could not justly be restricted or traded off for the purpose of generating additional substantive opportunities for less advantaged members of society even if such trade-offs could be expected to be successful in achieving this purpose.

While social liberals disagree on empirical grounds with classical liberals, who tend to emphasize the instrumental importance of market freedom, the social liberal disagreement with libertarians, who attach a high degree of intrinsic value to market freedom, is deeper and more intractable. Social liberals (and some classical liberals) might wonder why any intrinsic value should be attached to market freedom, as distinct from whatever instrumental importance it might have in enhancing citizens’ substantive opportunities and capabilities. After all, it is not as if the attachment of intrinsic importance to the protection of market freedom could very easily be justified by reference to any principle of moral desert. In the first place, neither the natural gifts, talents, and abilities with which people are endowed, nor the particular advantages people receive from the familial and societal environments in which they are born and brought up, can be said to be morally significant or non-arbitrary sources of socio-economic inequality, the distributive effects of which people can be said in any way morally to deserve (Rawls, 1999, pp. 86–89). Higher incomes and larger holdings of property that result from such morally arbitrary sources of inequality can hardly be said to be ‘deserved’ by those who are fortunate enough to find themselves in a position to earn and acquire these incomes and holdings of property. Second, even if we assume that there are numerous morally non-arbitrary sources of socio-economic inequality in the free choices people make regarding, for example, the effort they are willing to make[3] or the risks that they are prepared to take, it is surely highly implausible to suggest that there are any feasible social and economic institutions that could accurately detect and reflect the extent to which people’s incomes and holdings of property are the result of their free choices, rather than their good fortune in the ‘natural lottery’.[4]

It is important here to note that it in no way follows from these arguments that there is no place for the exercise of individual responsibility in a socially and politically just society, or that considerations relating to the value of individual responsibility can play no part in the justification of particular social and economic institutions. As Rawls and others have pointed out, in a just society, individuals and groups acquire claims – ‘legitimate expectations’ – to shares of the social product by participating in and complying with existing socio-economic arrangements and practices and by performing their share of productive activity. These legitimate expectations generate rights which are secured by just basic socio-economic institutions. Thus, although what people are entitled to is ‘not proportional to nor dependent upon their intrinsic worth’, we can nevertheless say that ‘a just scheme gives each person his due: that is, it allots to each what he is entitled to as defined by the scheme itself’ (ibid., p. 276).

Citizens may therefore be entitled, through their responsible participation in and compliance with just terms of social cooperation, to the higher incomes and larger holdings of property with which these terms of cooperation may provide them. But this does not mean that they can be said to deserve their higher incomes and larger holdings of property, and it does not explain why any intrinsic value should be attached to market freedom, as distinct from whatever instrumental importance it might have in enhancing citizens’ substantive opportunities and capabilities. Before I address this issue, I would like to highlight a deeper and potentially more powerful criticism of the idea of market freedom.

Entitlement as an Inappropriate Criterion for the Distribution of Property

Many liberals take the argument against the idea of moral desert as the justification for market freedom and its corresponding socio-economic inequalities a stage further, arguing against the very idea of ‘private property’ as something to which citizens can be said to have any kind of moral entitlement prior to the imposition of the taxation that forms part of a system of just basic socio-economic institutions. On this more radical but now fairly widespread view (Murphy and Nagel, 2002; O’Neill, 2007; Rawls, 1999, p. 271; Wright, 2006), we must reject not only the notion that all of pre-tax income can be regarded as morally deserved, but also the idea that pre-tax income and holdings of property that have been acquired through voluntary exchange in free markets in some sense ‘belong’ to those who have earned them, prior to the deduction of taxes by government. As Liam Murphy and Thomas Nagel point out, part of the reason for this is that:

the modern economy in which we earn our salaries, own our homes, bank accounts, retirement savings, and personal possessions, and in which we can use our resources to consume or invest, would be impossible without the framework provided by government supported by taxes.

(2002, p. 8)

Since the tax system that supports this framework ‘cannot be evaluated by looking at its impact on private property, conceived as something that has independent existence and validity’, it follows that instead of taking as given ‘some initial allocation of possessions – what people originally own, what is theirs, prior to government interference’ – we must subject this system of property rights that taxation makes possible to critical evaluation, and in this way arrive at a judgement on the justice or injustice of this particular system of property rights and entitlements, which includes the system of taxation that makes it all possible (ibid., p. 8).

Murphy and Nagel therefore describe as ‘deeply incoherent’ the assumption that ‘so long as government does not pursue redistributive expenditure policies, the pretax distribution of resources can be regarded as the distribution produced by a free market’ (ibid., p. 32). Since there is ‘no market without government and no government without taxes’, it is ‘logically impossible that people should have any kind of entitlement to all their pretax income. All they can be entitled to is what they would be left with after taxes under a legitimate system, supported by legitimate taxation’ (ibid., pp. 32–33).

If we accept this line of argument, then should we not reject the idea that there is any such thing as ‘market freedom’ which is restricted by the imposition of taxation on production, employment, and consumption, or by the regulation of capital investment and the employment of labour? For if the rights of private ownership exist only subsequent to and not prior to the imposition of taxation or the regulation of economic activity, then these rights cannot be restricted by any taxation or regulation which is part of a just system of socio-economic institutions.

Using geo-classical arguments discussed in Chapter 3, I shall argue that even if we accept the idea that there is ‘no market without government and no government without taxes’ – and that people therefore cannot be said to be entitled to their pretax property – it does not follow from this that it is illogical or ‘deeply incoherent’ to suggest that there are circumstances in which citizens might be said to be ‘entitled’ in some way to the property that the market returns to them prior to the imposition specifically of redistributive taxation and regulation. These circumstances, I shall argue, are those in which the property that the market returns to citizens broadly reflects either the productive contributions made by each citizen to the creation of this property, or the choices made in respect of the distribution of property (through gifts and bequests) by those responsible for its creation. In these circumstances – which are those in which markets can properly be said to be ‘free’ – citizens have rights of private ownership which apply in respect of the property that the market returns to them prior to the imposition of redistributive taxation and regulation. Such taxation and regulation restrict these rights, and therefore restrict market freedom.

On this view, it is indeed the case that the only income and wealth that people can be entitled to is what they would be left with after legitimate taxation and regulation. But on this view, legitimate taxation and regulation are taxation and regulation that (1) do no more than support the ‘framework that makes the modern economy possible’; and (2) support this framework as far as possible through the socialization of what has already been socially created, and thereby in a way that provides the most favourable environment for the pursuit of conceptions of the good through the creation and acquisition of privately created property. Those who adopt this view argue that the form of taxation that best satisfies these criteria is a tax imposed on the owners of valuable land in proportion to the rental value of the holdings that each owns: this form of tax – land value taxation – is the only form of tax whose imposition enhances rather than restricts the protection of market freedom.[5]

Of course, to argue that the socialization of socially created property is achieved through the socialization of the rental value of land is to reject the view – identified above in the work of Hobhouse – that since all property is in some sense socially created, much of this property can justifiably and expediently be redistributed through the imposition of progressive taxation.[6] The geo-classical view is that the contribution made by society to the creation of wealth is reflected in the rental value of land, and that the protection of rights of private ownership extends to the protection of rights of bequest and inheritance (though not, of course, to the protection of rights of inheritance in respect of privately appropriated land values). A proponent of this view will argue that the effective protection of the rights of private ownership that exist prior to the imposition of redistributive taxation and regulation and subsequent to the imposition of taxation on the rental value of land will generate a distribution of property that reflects citizens’ productive contributions (subject to choices made concerning gifts and bequests) more accurately than any other system of property and taxation.

It is important to emphasize that this line of argument does not challenge the view that citizens in no way morally deserve the shares of property that the market returns to them: the factor of brute luck (whether in respect of the distribution of natural talents and abilities, or in respect of the success with which these endowments are utilized) plays too large a role in determining the value of the contributions people are able to make and the size of the shares that the market returns to them. But productive contributions which could only have been made by people blessed with an unusually fortunate natural or familial background, or against the background of an unusually lucky coincidence of natural or trained talents and abilities with the consumption demands of large numbers of fellow citizens, are still productive contributions. And a distribution which reflects one’s luck in being the beneficiary of a large bequest is still a distribution which reflects the free choice made by someone who has made a productive contribution. The property that a ‘free’ market returns to citizens prior to the imposition of redistributive taxation and regulation might therefore be said, not illogically, to be returns to which these citizens are entitled, having ‘earned’ (though not necessarily ‘deserved’) them from the productive contributions that each has made.

Of course, social liberals will still object to this view on the basis that even if it were possible to assess to any degree of accuracy just how ‘free’ a market system actually is, it is not clear why citizens could be said to be in any way ‘entitled’ to their pre-redistribution market returns, given that it cannot be said that these returns are in any way morally deserved by those who have secured them. Why should we regard market returns that cannot be said to be morally deserved to be returns to which people are nevertheless ‘entitled’, particularly given that it in any case seems highly unlikely that we will be in a position accurately to determine how far the distribution of these returns is indeed a reflection of the productive contributions each citizen has made?

In addressing this question, we might first follow Murphy and Nagel in noting that the view to which they object (or at least something very much like it) is widely held within liberal societies such as the United States and the United Kingdom, and is therefore an undeniably significant aspect of the public political consciousness of such societies. What Murphy and Nagel refer to as ‘everyday libertarianism’ is the false but widespread and for many highly intuitively appealing feeling that what people have earned belongs to them without qualification – that people are absolutely morally entitled to their net pre-tax incomes. Murphy and Nagel worry that the prevalence of this unexamined form of libertarianism, which places the burden of proof on departures from market outcomes, ‘skews the public debate about tax policy and distributive justice’ (2002, p. 36). They suggest that tax policy analysis must be ‘emancipated’ from everyday libertarianism, which ‘should be replaced by the conception of property rights as depending on the legal system that defines them’ (ibid., p. 36).

However, given the prevalence of the unexamined ‘everyday’ libertarian view to which Murphy and Nagel object, it seems like wishful thinking to imagine that tax policy analysis, and social policy analysis in general, will ever be emancipated from libertarian ideas and arguments. A more realistic and potentially fruitful aim would surely be to develop a more examined and less ‘everyday’ form of libertarianism which might provide a basis for more constructive discussion and conversation between classical and social liberals. The idea that what we are fundamentally entitled to is our pre-tax market returns of income and wealth is not the same as, and should not be conflated with, the idea that we have some kind of entitlement to our pre-redistribution market returns of income and wealth. The first idea is, as Murphy and Nagel suggest, illogical and incoherent, since there is no market without government and no government without some kind of taxation. But the second idea is not illogical or incoherent, since once citizens have paid the taxation necessary for setting up and maintaining a market system which is designed to align, as accurately as possible, market returns of income and wealth with productive contributions to the creation of these goods, then – to the extent that market returns and productive contributions are indeed aligned – there is an obvious sense in which one’s market returns can be said to have been created by one’s productive contribution (or by the productive contribution of one’s benefactor), and therefore that one’s market returns are one’s ‘private property’. On this view, people may still have good reason to agree to give part of their property in order to provide for the needs or fundamental interests of others less fortunate (or hard-working) than themselves, and it may even be justifiable for the state to force them to part with some of their property for these purposes; but it is nevertheless their property that is then being given or taken.

But what then of the other problem for this coherent libertarian view – the problem that it may be impossible to assess to any degree of accuracy how ‘free’ a market system in fact is, and therefore to assess the extent to which market returns are indeed aligned with productive contributions? Although the idea of a perfectly ‘free’ market system which generates market returns in proportion to productive contributions does seem somewhat fanciful and unrealistic, it does not follow from this that some market systems are not (demonstrably) significantly less free than others, that (at least some of) the more important differences between free and less free market systems cannot clearly be identified, and that institutional measures which might make market returns and productive contributions more closely aligned cannot be identified and implemented.[7] In other words, just because the ideal of a perfectly free market is unattainable in practice (and perhaps even unidentifiable in theory), this does not mean that progress cannot be made towards the creation of a society in which the market distribution of property is a closer reflection of citizens’ productive contributions than distributions generated by more restricted and regulated markets that benefit some (perhaps the more advantaged minority) at the expense of others (perhaps the less advantaged majority).

If a serious and sustained engagement by social (and classical) liberals with unexamined ‘everyday’ libertarianism yields a more examined, less ‘everyday’ libertarian view that clearly identifies a set of institutional reforms which would make market returns and productive contributions more closely aligned, then the results might be surprisingly positive from a progressive, social liberal perspective. As I will argue in Chapter 6, a free market-based society in which market returns are more closely aligned with productive contributions than they are in contemporary liberal societies is likely to be a society that is more socially just than contemporary liberal societies. And if at least part of the progressive transformation needed to satisfy the principles of social justice can take the form of institutional reforms that are designed to make market returns more closely aligned with productive contributions by strengthening the protection of market freedom, then this will reduce the burden placed on institutional reforms designed to make social cooperation more just by restricting market freedom.

For these reasons, I believe that the idea that citizens might be thought to have some kind of moral entitlement to their privately created property – the pre-redistribution income and wealth that the market returns to them for their productive contributions to the creation of these goods – is worth taking seriously, even if only to subject it to more rigorous critical scrutiny than it often receives. In order to evaluate just how progressive a set of institutional reforms designed to strengthen the protection of market freedom might be, it is necessary first to re-examine the idea of market freedom itself, and to identify the kinds of reforms that would be needed to strengthen it. Hitherto, social liberals have not questioned and challenged the orthodox, classical liberal interpretation of the idea of market freedom as effectively as they might have done. In Chapter 3, we will consider the arguments developed by a set of liberal (or libertarian) thinkers who have made serious attempts to question and challenge the orthodox, classical liberal interpretation of the idea of market freedom, and to provide a more defensible interpretation of this important idea.

Notes

1

The speculative investment in land values, which does not usually generate anything that can be identified as privately created property, is considered in Chapter 3.

2

The existence of this kind of pluralism is explained by what Rawls refers to as the ‘burdens of judgment’ – the factors that lead people to make different judgements even when they seek to be impartial and are presented with similar reasons and evidence (1996, pp. 54–58).

3

As Rawls pointed out, even the effort a person is willing to make is likely to be influenced by her natural abilities and skills, and by the possibilities open to her: the better endowed ‘are more likely other things equal, to strive conscientiously, and there seems to be no way to discount for their greater good fortune’ (1999, p. 274).

5

The question of the kinds of regulations that satisfy the criteria specified in this paragraph is more complex and difficult, touching on a range of issues including the structure of the financial and monetary systems of a liberal society, the legal construction and regulation of corporate entities, and the treatment of patents and intellectual property. I consider some of the issues relating to financial and monetary institutions in Chapter 6.

6

A version of this view recently referred to as the ‘knowledge inheritance theory of distributive justice’ (Alperovitz and Daly, 2008) is discussed in Chapter 3.

7

As Albert Weale has argued, despite the fact that workers in modern liberal societies cannot be said to receive ‘the full fruits of their labour’ since their wages are generally not equal to the value of their marginal products, it does not follow from this that the ‘marginal product principle’ is irrelevant to these societies, or that this principle cannot be ‘a useful critical tool’ (2015, p. 235). If we believe that ‘the value of products should belong to producers, provided that they have paid their necessary dues to maintain the fabric of society, since the products would not have existed without their efforts’, then in a situation in which some people seem clearly to be rewarded well above their marginal product, the obvious question that arises is whether their earnings are properly due to someone else (ibid., pp. 235–236). Weale has constructed a contractarian theory of justice whose main principle of economic justice is that ‘workers are owed the full fruits of their labour, provided that they have roughly equal access to the means of production’ (ibid., p. 234; see also 2013, pp. 65–94, 191–220).

References

Alperovitz G. and Daly L. 2008, Unjust Deserts. New York: The New Press.

Epstein R. 1985, Takings: Private Property and the Power of Eminent Domain. Cambridge, MA: Harvard University Press.

Freeman S. 2011, ‘Capitalism in the Classical and High Liberal Traditions’. Social Philosophy and Policy, Vol. 28, No. 2, 19–55.

Friedman M. 1962, Capitalism and Freedom. Chicago: University of Chicago Press.

Green T. H. 1991, ‘Liberal Legislation and Freedom of Contract’. In Miller D. (ed.) Liberty, Oxford: Oxford University Press, pp. 21–32.

Green T. H. 1999 [1895], Lectures on the Principles of Political Obligation. Kitchener, ON: Batoche Books.

Hayek F. A. 1982 [1973], Law, Legislation, and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy (new edn). London: Routledge & Kegan Paul.

Hobhouse L.T. 1994 [1911], Liberalism and Other Writings. Cambridge: Cambridge University Press.

Meade J. 1964, Efficiency, Equality, and the Ownership of Property. London: Allen & Unwin.

Mill J. S. 1974, On Liberty. London: Penguin Books.

Mill J. S. 1909 [1848], Principles of Political Economy with Some of their Applications to Social Philosophy (seventh edn). London: Longmans, Green and Co. Available at: www.econlib.org/library/Mill/mlP.html

Miller D. 1991, ‘Introduction’. In Miller D. (ed.) Liberty, Oxford: Oxford University Press, pp, 1–20.

Murphy L. and Nagel T. 2002, The Myth of Ownership: Taxes and Justice. Oxford: Oxford University Press.

Nozick R. 1974, Anarchy, State and Utopia. New York: Basic Books.

O’Neill M. 2007, ‘Death and Taxes’. Renewal, Vol. 15, No. 4, 62–71.

Prabhakar R., Rowlingson K. and White S. 2008, How to Defend Inheritance Tax. London: Fabian Society.

Rawls J. 1996, Political Liberalism. New York: Columbia University Press.

Rawls J. 1999 [1971], A Theory of Justice (revised edn). Oxford: Oxford University Press.

Rawls J. 2001, Justice as Fairness: A Restatement. Cambridge, MA: Harvard University Press.

Sen A. 1999, Development as Freedom. Oxford: Oxford University Press.

Sen A. 2010, The Idea of Justice. London: Penguin Books.

Tomasi J. 2012, Free Market Fairness. Princeton, NJ: Princeton University Press.

Weale A. 2013, Democratic Justice and the Social Contract. Oxford: Oxford University Press.

Weale A. 2015, ‘Just Returns in the Great Society’. Political Studies Review, Vol. 13, No. 2, 226–238.

Wright E. O. 2006, Redesigning Distribution. London: Verso.

3 Geo-Libertarianism

The Prioritization of Unorthodox Market Freedom

Introduction

We have seen in the previous two chapters that social liberals have assigned a much lower level of importance to market freedom than classical liberals, and that any importance which they do attach to this form of freedom is based solely on any instrumental role it might have in improving the opportunities and prospects of all members of society, including the least advantaged. In this chapter, I consider a range of ideas and arguments developed by the proponents of a distinctive left-libertarian view – ‘geo-libertarianism’ – the basis of which is the absolute prioritization of an unorthodox conception of market freedom. The main argument of the chapter is that the central feature of the geo-libertarian conception of justice – which I refer to as the geo-classical theory of distribution – is highly plausible and, at least in its modern form, not seriously undermined by the various criticisms to which it has been subjected since it was first expressed fully and explicitly in the late nineteenth century. I then use aspects of this theory of distribution in later chapters to explain why strengthening the protection of market freedom might turn out to be much more instrumentally important in terms of satisfying the demands of social justice than social liberals have typically supposed.

First, I identify the roots of the geo-classical theory of distribution in the classical political economy of Adam Smith and David Ricardo, and then I outline the explicit expression of the theory in the work of the American journalist and social critic, Henry George. In the second section, I contrast the left-libertarianism of Henry George with ‘right-libertarian’ conceptions of justice which endorse the absolute prioritization of the orthodox form of market freedom identified in Chapter 1. I argue that George’s ‘geo-libertarian’ conception of justice constitutes a distinct form of leftlibertarianism which endorses the absolute prioritization of an unorthodox form of market freedom, the central feature of which is the socialization of the rental value of land. In the next section, I then consider the most important of the criticisms to which the geo-classical theory has been subjected, and I argue that while certain features of the theory as it was presented by Henry George have been shown to be erroneous, the theory as a whole has been developed by modern geo-classical thinkers in a form which is highly plausible and defensible.

Classical Political Economy and the Idea of the Socialization of Rent

Smith and Ricardo

In The Wealth of Nations (1904 [1776]), Adam Smith presented a devastating critique of mercantilism, the system of economic theory and practice that promoted the state regulation and protection of a nation’s economic activity in order to build wealth and power and enable successful competition against rival nations. Smith argued that free competition within a society would benefit all the members of this society much more than heavily state-regulated and state-controlled economic activity, and that free competition between societies would benefit all societies much more effectively than each would benefit from the implementation of mercantilist protectionist policies. In opposition to the mercantilist system, Smith endorsed what he referred to as ‘the system of natural liberty’, in which the role of the state would be limited to activities necessary for national defence and security, the provision of a range of public goods, and the administration of justice. With the state relinquishing much of its control over economic activity, positions in the economic order would be made ‘open to talents’, determined not by one’s birth, rank, or political connections, but by one’s talents, ambitions, effort, and enterprise. In this way, latent talents would be fully harnessed, and the system of natural liberty would generate prosperity for all and enrich society as a whole, rather than those in a position to capture state power and turn it to their own interests (Fleischacker, 2015).

Many of the key elements of Smith’s critique of mercantilist regulatory and protectionist theory and practice were anticipated by a group of thinkers known in mid-eighteenth-century France as ‘the economists’ (later referred to as the Physiocrats). The leading figure of this group was François Quesnay, who in 1758 published the Tableau Oeconomique, in which he attempted to provide a theoretically watertight argument to support the conclusion that since the only genuinely productive sector of the economy was the agricultural sector, all wealth came ultimately from the land (Blaug, 1985 [1962], pp. 24–29). This being the case, the most effective way in which to increase the national product was to remove as many as possible of the obstacles faced by agricultural producers – tariffs, tolls, regulations, and taxes on production – and in general to deregulate economic activity and reduce and systematize taxation (ibid., pp. 24–25). The most significant (and notorious) of the reforms called for by Quesnay was the replacement of all taxes on production with the ‘impôt unique’, a single tax on the unimproved value of land, which Quesnay considered to be the form of tax that would generate the fewest distortions of economic activity (ibid., pp. 25–28).

Although Smith rejected many of the seemingly absurd ideas expressed by Quesnay and the Physiocrats, he enthusiastically endorsed their basic anti-mercantilist, pro-free market message. A significant aspect of Smith’s analysis of the system of natural liberty was his emphasis of the importance of achieving fairness and efficiency in the tax system. Though he did not endorse anything like the single tax on the value of land proposed by the Physiocrats, he did argue that the most fair and efficient form of taxation would be that imposed on what he called ‘ground rents’, a form of rent generated by ‘the good government of the sovereign’ (Smith, 1904 [1776], Bk V, Ch. 2, Sec. 76). Since this form of rent was ‘a species of revenue which the owner, in many cases, enjoys without any care or attention of his own’, it followed, Smith argued, that:

[t]hough a part of this revenue should be taken from him in order to defray the expences of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before.

(ibid., Bk V, Ch. 2, Sec. 75)

For these reasons, Smith argued, it would be perfectly reasonable to suggest that such a fund ‘should be taxed peculiarly’, and ‘should contribute something more than the greater part of other funds’ towards the support of the government to which it owes its existence (ibid., Bk V, Ch. 2, Sec. 76). What Smith seems here to be expressing is a version of the view, central to later geo-classical thought, that the rental value of land, owing its existence to ‘the good government of the state’, is at least to a certain extent publicly created, and is therefore a particularly appropriate source of public revenue, certainly more appropriate than other sources such as the wages of labour, or the consumption or importation of basic commodities.

Of more importance to the later geo-classical development of this view, however, was the work of David Ricardo, who developed a more rigorous and sophisticated account of the idea of rent than that presented by Smith. Rent, as Ricardo defined it, arises as a result of the law of diminishing returns, and is always ‘the difference between the produce obtained by the employment of two equal quantities of capital and labour’ (1821 [1817], Ch. 2, Sec. 8). The law of diminishing returns states that after a certain point the application of additional inputs of one factor of production will generate less and less output if inputs of all other factors remain fixed (Samuelson and Nordhaus, 1989 [1948], pp. 33–34). This being the case, the application of additional inputs of labour or capital on one site will at some point start to generate less additional output – the returns to these inputs will start to diminish – until eventually the application of additional inputs ceases to generate any additional output. Once diminishing returns have set in on a site, it is more profitable to apply additional units of labour and capital on a new site than to continue applying these units subject to ever higher diminishing returns on the same original site (provided, of course, that returns on the new site are at least equal to the returns generated on the original site at the point at which diminishing returns set in).

What Ricardo pointed out was that if the sites to which labour and capital move when diminishing returns set in are in some way inferior to the sites which are the first to be utilized – say, less naturally fertile or less well situated in relation to existing markets – then the original sites will earn a rent which is equal to the difference between the value of the output that can be produced on these sites and the value that can be produced on the inferior sites using the same inputs of labour and capital (1821 [1817], Ch. 2, Sec. 4–6). Thus, the rent that arises on the best sites is higher than the rent that arises on the second best, while the least productive sites in use – those at the extensive margin of production – yield no rent at all. This is the case because the price that can be charged for the output produced on each site – the ‘exchangeable value’ of this output – is set by the cost of the inputs of labour and capital needed to produce output on the least productive sites in use: when more inferior sites are brought into production, the cost of production is higher on these sites than it is on the better sites, and the exchangeable value of the output produced on all sites rises accordingly (ibid., Ch. 2, Sec. 11–15). This form of rent is what economists now refer to as ‘differential rent’, since it arises from and reflects the difference between the value of the output that can be produced on more productive (intra-marginal) sites, and the value of the output that can be produced (using the same inputs of labour and capital) on the least productive sites in use (the marginal sites) (Hodgkinson, 2008, pp. 76–77).

But if rent ‘is always the difference between the produce obtained by the employment of two equal quantities of capital and labour’, then this is the case whether the equal quantities of capital and labour are applied on one site or on many: if it turns out to be more productive to employ additional units of labour and capital on the best sites even after diminishing returns have set in than to employ these additional units on inferior sites, then rent will arise even on the best sites – consisting of the difference between the output produced by applications of labour and capital up to the point at which diminishing returns set in and the output produced by further applications of labour and capital after this point (Ricardo, 1821 [1817], Ch. 2., Sec. 7–10). Thus, the rent that arises from the most productive applications of labour and capital is higher than the rent that arises from the next most productive, while the least productive applications – those made at the intensive margin of production – yield no rent at all. The rent that arises from the diminishing returns to applications of labour and capital on the same site is what economists now refer to as ‘scarcity rent’, since it arises from the finite supply of land, and often as a result of landowners holding sites out of production, with additional inputs of labour and capital for this reason applied more and more intensively on the same sites, and subject therefore to considerable diminishing returns, rather than moving to new sites on which they could be employed subject to no (or at least fewer) diminishing returns (Hodgkinson, 2008, pp. 77–78).

Thus, Ricardo argued, ‘rent invariably proceeds from the employment of an additional quantity of labour with a proportionally less return’ (1821 [1817], Ch. 2, Sec. 10). It was important, Ricardo observed, to distinguish between the idea of rent thus defined and other popular usages of the term ‘rent’, such as the total rent paid by a farmer to his landlord (which would include a payment for capital improvements such as buildings, fencing, fertilizer, and so on), as well as more generally to avoid confounding rent with other terms such as those of interest and profits. The reason for this was that ‘the laws which regulate the progress of rent, are widely different from those which regulate the progress of profits, and seldom operate in the same direction’ (ibid., Ch. 2, Sec. 2). One such difference which Ricardo noted was that in contrast to the laws which regulate the progress of profits, those that regulate the progress of rent are such that the imposition of a tax on this particular source of value would affect nothing other than rent and could not be passed on from the person on whom the tax was imposed (the owners of valuable land) to producers or consumers in the form of higher prices or lower wages (ibid., Ch. 10, Sec. 1).

Ricardo’s formulation of the idea of rent therefore seemed to confirm Smith’s earlier view that ‘ground rents’ were ‘the species of revenue that can best bear to have a peculiar tax imposed on them’, provided that ‘ground rents’ are indeed ‘rent’ in the strict Ricardian sense of this term. Ricardo himself argued on the basis of a variety of considerations that it would be unjust ‘to tax exclusively the revenue of any particular class of a community’, and that it would certainly be ‘an infringement of that principle which should ever be held sacred, the security of property’ to subject rent to unequal taxation (ibid., Ch. 14, Sec. 6). Nevertheless, it is clear that in his work we find some of the basic ingredients of a powerful case, from considerations both of fairness and economic efficiency, for the imposition of some form of taxation on the rental value of land. The potentially radical implications of Ricardo’s theory of rent quickly became evident to many of his readers and followers, in particular his mentor James Mill, who argued that although landlords’ current rents could not justifiably be confiscated (since their existing property rights must be respected), any future increases of their rents which might result from population growth or from new legislation could and should be taxed (Mill, 1844 [1821], Ch. IV, Sec. 5).[1] However, it was not until the end of the nineteenth century, in the work of the American journalist and social critic, Henry George, that Ricardo’s theory of rent was used to construct a case, from considerations of justice, fairness, and social expediency, for the complete socialization of the rental value of land.

Henry George

In the work of Henry George, the theory of rent was extended beyond its narrow application by Ricardo – for whom rent was ‘that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil’ – to the natural and social advantages attached to land put to any kind of use, whether agricultural, residential, or commercial. In 1879, when George’s Progress and Poverty was published, the United States was a much richer society than it had been at the time of its (and his) birth, and its citizens had experienced nearly a century of (not entirely uninterrupted) economic development. But despite the immense progress achieved in the sphere of economic production and technological development during the course of the nineteenth century, the United States was still plagued by poverty and by regular and devastating industrial depressions and downturns. Rather than improving the condition of the labouring class of citizens by providing more wealth in return for less work, the extraordinary technological advances made during the nineteenth century seemed if anything to have worsened the condition of the labouring classes. Huge gains in the productivity of labour were somehow cancelled out by massive reductions in the bargaining power exercised by labour, so that the gains in productivity were not translated into higher wages, more leisure, and improved economic security.

It seemed to George that only in the oldest and most advanced rich countries must widespread poverty and destitution always and inevitably accompany great abundance and plenty. In the newer, less developed communities in which there was little or no luxury and generally a much lower standard of living, destitution was much harder to find. In such a community, ‘[n]o one makes an easy living, nor a very good living; but every one can make a living, and no one able and willing to work is oppressed by the fear of want’ (George, 1920 [1879], Introduction). It is in the older, more developed countries, ‘where population is densest, wealth greatest, and the machinery of production and exchange most highly developed’ that we find ‘the deepest poverty, the sharpest struggle for existence, and the most of enforced idleness’ (ibid., Introduction). In such places the ‘promised land’ of material plenty ‘flies before us like the mirage’ (ibid.).

In Progress and Poverty George sought to explain and offer a practical remedy for this apparently paradoxical association of increasing want with advancing wealth. He began by rejecting the view, expressed most notably by Thomas Malthus (1798), that unless population expansion is checked by preventive ‘moral restraint’, it will be restricted by ‘positive’ checks such as disease and starvation, and ultimately famine and war. George saw the ‘Malthusian doctrine’ – which suggests that poverty arises as increased population forces further division of subsistence – as fitting harmoniously with what he considered to be the entirely erroneous theory that wages fall as larger numbers of workers force a finer division of capital (the ‘wagesfund’ theory) (1920 [1879], Bk 2, Ch. 1). He recognized that these theories seemed to fit many apparently common-sense views held by most people at the time, and seemed to be corroborated by many obvious facts, including ‘the general effect of material progress in increasing population without relieving pauperism’ (ibid., Bk 2, Ch. 1, Sec. 11). But in his view, the real reason for the popularity and triumph of the Malthusian doctrine was the legitimacy which it seemed to give to the ruling classes in the most economically developed nations. Instead of challenging the vested interests of the rich and powerful, the Malthusian doctrine:

came to the rescue of the special privileges by which a few monopolize so much of the good things of this world, proclaiming a natural cause for the want and misery which, if attributed to political institutions, must condemn every government under which they exist.

(ibid., Bk 2, Ch. 1, Sec. 15)

Against the Malthusian doctrine George argued that a larger population can in fact collectively produce more than a smaller one, and that a growing population can produce more than is required to provide for the increased numbers (ibid., Bk 2, Ch. 4). When we attend to the facts, George asserted, we see that it is undeniable that wealth is greatest where population is densest, and that the amount of wealth produced by a given amount of labour increases as population increases (ibid., Bk 2, Ch. 4). In any given state of civilization, a greater number of people can produce a larger proportionate amount of wealth than can a smaller number, for the obvious reason that a denser population results in a finer division of labour and greater economies of production and distribution: ‘Twenty men working together will, where nature is niggardly, produce more than twenty times the wealth that one man can produce where nature is most bountiful’ (ibid., Bk 2, Ch. 4, Sec. 15). Poverty appears where productive power is greatest and the production of wealth is largest, and is therefore caused neither by lack of capital nor by limitation of nature. Poverty and deprivation are not natural phenomena caused by overpopulation, but social phenomena, instances of social injustice, caused by specific and identifiable social arrangements that are subject to critique and reform.

But if this is the case, then to which particular social arrangements may the existence of poverty amidst plenty be attributed, and how might they be reformed? In order to answer this question, George turned his attention away from the laws governing the production of wealth, and to the laws governing its distribution, in particular, the law of rent as this had been formulated by Ricardo earlier in the nineteenth century. George thought that, although in all the standard works of political economy of his time the basic law of rent itself had been clearly understood, its obvious corollaries had not. In his view, to assert the truth of the law of rent is to assert

that no matter what the production which results from the application of labor and capital, these two factors will receive in wages and interest only such part of the produce as they could have produced on land free to them without the payment of rent—that is, the least productive land or point in use.

(ibid., Bk 3, Ch. 2, Sec. 11)

Since ‘the average man’ will neither work for an employer for less than he can earn by working for himself, nor work for himself for less than he can earn by working for an employer, it follows that ‘the return which labour can secure from such natural opportunities as are free to it must fix the wages which labor everywhere gets’ (ibid., Bk 3, Ch. 6, Sec. 24). In other words, the general level of wages and interest is set by the productivity of labour and capital at the margin of production, since the rent that arises on valuable sites reflects precisely the excess productivity of labour and capital on these sites over the productivity of these factors on the least valuable sites in use. If the return which labour can secure from land at the margin of production remains the same even when the productivity of labour is rising – that is, if rent rises in line with rising productivity – then wages cannot rise. Thus, that an increase of productive power does not increase wages is because it does increase the value of land: rent ‘swallows up the whole gain and pauperism accompanies progress’ (ibid., Bk 3, Ch. 8, Sec. 12).

George’s explanation for the stagnation of wages and interest despite increasing productivity was therefore that all the gains from progress in the methods of production were absorbed by rising land values, generating increasing rents rather than increasing wages and interest. But what did he identify as the force or mechanism that distributes a greater and greater proportion of the output from increasingly productive applications of labour and capital as rent? George identified three such factors. Population growth increases the proportion of output going to rent first, by reducing the margin of cultivation (by forcing production to less fertile land, as had been recognized by Ricardo), and second – and in George’s view far more importantly – by generating localized economies of scale and network effects that massively enhance the productive power of labour and capital in specific locations (ibid., Bk 4, Ch. 2). The greater opportunities for cooperation and exchange resulting from larger populations in specific locations meant that population growth would generate a more than proportionate increase in the productivity of labour and capital, with the appearance of shops, traders, skilled artisans, factories, and workshops all making the division of labour ever more advanced, and with ever larger volumes of exchanges reducing costs and inefficiencies to a minimum (ibid., Bk 4, Ch.2). This, of course, meant that the rental value of sites in these specific locations would rise far higher than the value of sites in less densely populated areas where the productivity of labour and capital was much less (ibid., Bk 4, Ch. 2).

However, since (human nature being what it is) the demand for wealth increases not only with rising population, but also with increasing power to obtain or produce the things that people desire, the effect of laboursaving improvements – which enhance productivity by allowing the same output to be produced with less labour, or a higher output with the same amount of labour – is to increase the production of wealth, rather than to reduce the amount of labour expended (ibid., Bk 4, Ch. 3). Because the production of wealth requires both labour and land, the effect of labour-saving improvements will therefore be to increase the demand for land, since any increase in productive power that a particular labour-saving device generates will itself generate more labour for some other productive purpose for which land is essential (ibid., Bk 4, Ch. 3). And since higher demand for land will extend the margin of production and thereby increase rent, even if the population remains steady, it follows that ‘every labor-saving invention, whether it be a steam plow, a telegraph, an improved process of smelting ores, a perfecting printing press, or a sewing machine, has a tendency to increase rent’ (ibid., Bk 4, Ch. 3, Sec. 13).

In addition to improvements in methods of production and exchange that directly expand the productive power of labour, George also identified improvements that cause rent to rise by indirectly increasing productivity, including improvements in government and administration – such as the abolition of protectionism in England. Any benefit generated by such improvements, he argued, ‘is ultimately monopolized by the possessors of land’: free trade, for example,

has enormously increased the wealth of Great Britain, without lessening pauperism. It has simply increased rent. And if the corrupt governments of our great American cities were to be made models of purity and economy, the effect would simply be to increase the value of land, not to raise either wages or interest.

(ibid., Bk 4, Ch. 3, Sec. 23)

Thus, population growth together with improvements in the powers of production and exchange explained the rise of rent in line with the rise of the productive power of labour and capital.

But there was another important factor which, in George’s view, greatly exacerbated the rent-enhancing effects of population growth and improvements in production – speculation in land values. With population growth and improvements in production generating increased demand for land, production necessarily moves to less productive sites as the more productive ones are used up. If all of the sites in superior locations in a city were put to use before bringing less productive sites in inferior locations into use, then we might expect there to be no vacant lots or slum shanties within the city limits as the city expands. In this case, the margin of production would lie at the edge of the city where land can be obtained at agricultural prices. George pointed out, however, that in the confident expectation that land values will continue to rise, the owners of valuable sites often calculate that it is in their interests to hold their sites out of production until they are able to obtain a higher price than the price that they can currently obtain (ibid., Bk 4, Ch.4, Sec. 9). With land kept out of use for these speculative purposes, the margin of production is extended far beyond the limits of the city, so that, for a long way beyond the edge of the city, land bears a speculative value (ibid., Bk 4, Sec. 10).

Those forced out beyond the point at which they would have been able to obtain land, had all the sites in the superior locations been used, will then have good reason, if they have the means, to obtain more land than they are able to use for productive purposes, since they can reasonably expect the value of what they obtain to increase steadily. Thus the margin of production is extended even further than is required by ‘the necessities of production’, and speculation in land values causes rents to rise even higher and wages and interest to fall even lower as a proportion of output than would otherwise be the case if population growth and improvements in production were the only forces causing rents to rise (ibid., Bk 4, Ch. 4, Sec. 12). Since land is ‘a fixed quantity, which human agency can neither increase nor diminish’, the tendency of its price constantly to rise cannot be limited in the way in which the prices of commodities are limited – that is, by increasing supply to match high demand (ibid., Bk 4, Ch. 4, Sec, 14). Speculation in land values therefore tends to reduce wages ‘to the point at which laborers will consent to work and reproduce’ (ibid., Bk 4, Ch. 4, Sec. 14).

This, then, was the full explanation for poverty amidst plenty, for the conjunction of progress with poverty, which George sought to uncover. Land is essential to labour, and rent is the price that labour must pay to use the productive potential of the land. Since rent rises, and may confidently be expected to rise, with every increase in the productive power of labour, the owners of valuable sites have good reason to extend the scarcity of land beyond its natural level. For these reasons, all the advantages gained by the march of progress go to the owners of land, and wages cannot rise. The great cause of inequality in the distribution of wealth is inequality in the ownership of land, humans being entirely dependent on land, the storehouse from which all needs are met, and the material to which labour must be applied in order to satisfy all desires.

Having thus diagnosed the private appropriation of rent as the central cause of the problem of poverty amidst plenty, George then proposed a radical remedy: if the unequal distribution of wealth which is the curse and menace of modern civilization can be traced to the institution of private property in land, then land must be made common property (ibid., Bk 6, Ch. 2). As we will see in Chapter 5, George’s references to ‘common property’ and ‘abolishing private ownership in land’ were unfortunate, and somewhat misleading, making his proposed remedy sound even more radical than in fact it was: what he was really endorsing was the socialization or taxation of rent – the abolition of all taxes save that on the rental value of land – rather than the abolition of private titles to land. In the next section, I take a closer look at George’s conception of a just institution of private property in land, which is central to the question of the place of market freedom in the geo-libertarian tradition.

Geo-Libertarianism and Market Freedom

Georgism as a Distinct Form of Left-Libertarianism

In assessing the justice of the institution of private property in land, George was emphatic in his endorsement of what is now referred to as the principle of self-ownership – the idea that ‘[a]s a man belongs to himself, so his labor when put in concrete form belongs to him’ (1920 [1879], Bk 7, Ch. 1, Sec. 4). This principle of self-ownership is one of the core ideas of any libertarian conception, and is typically traced back to the view expressed by Locke that ‘every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his’ (Locke, 1764 [1689], Bk 2, Ch. V, Sec. 27). George (who did not explicitly refer to Locke) thought that from this seemingly obvious principle it follows that anything a person makes or produces with their own labour belongs rightfully to that person and is that person’s property, to use or enjoy, give or exchange, or even to destroy (1920 [1879], Bk 7, Ch. 1, Sec. 5). The protection of such a right of exclusive possession could not, in his view, constitute a wrong or injustice against anyone else. Thus, ‘there is to everything produced by human exertion a clear and indisputable title to exclusive possession and enjoyment, which is perfectly consistent with justice, as it descends from the original producer, in whom it vested by natural law’ (ibid., Bk 7, Ch. 1, Sec. 5).

George claimed further that one’s (natural) right to oneself and that which one produces with one’s labour is not only the original source from which all legitimate titles to exclusive possession arise; it is also the only such source. Thus, there can be no rightful title to the ownership of anything which is not derived from the title of the producer, and which does not rest upon the natural right of the person to herself (ibid., Bk 7, Ch. 1, Sec. 7). It was partly on this basis that George rejected the idea that the full private ownership of land can ever be justified. However, his argument against private landownership involved not simply the negative claim that there can be no natural right to the ownership of something that is not the product of labour, but also the positive claim that people’s natural rights to the fruits of their labour were undermined by the institution of private property in land. George argued that since the general right to the product of labour entails the more specific right to create wealth by applying labour to land – the right to free use of the opportunities offered by nature – the institution of full private property in land is unjust because it allows private landowners to withhold land from productive use, thereby preventing the utilization of land for productive purposes and unjustifiably restricting the right to the free use of the opportunities offered by nature (ibid., Bk 7, Ch. 1). He argued further that since speculation in land values causes rents to rise artificially high and wages and interest to fall artificially low, it follows that full private property in land – without which there could be no speculation in land values – violates the right to the product of labour by allowing private landowners to claim as rent what would otherwise be part of the wages of labour (ibid., Bk 5, Ch. 2). And he argued finally that the institution of private property in land undermines the right of private ownership of the product of labour by eliminating rent as a source of public revenue, thereby generating the need for the taxation of production and employment, and further reducing wages and interest (ibid., Bk 8, Ch. 2).

For these reasons (all of which will be considered in more detail in the next section), George argued that to affirm that people can rightfully claim exclusive ownership in their own labour ‘is to deny that any one can rightfully claim exclusive ownership in land’ (ibid., Bk 7, Ch. 1, Sec. 8–9). If the natural right to gain the full benefit of one’s labour is to be secured, then it is the rights of security of tenure and exclusive use and possession of land which must be protected (these being essential to any long-term projects of wealth creation), rather than the right to the full private ownership of land, which includes the right to appropriate the rental value of privately owned land. George thought that the rental value of the land ‘expresses the exact amount which the individual should pay to the community to satisfy the equal rights of all other members of the community’ (ibid., Bk 7, Ch. 1, Sec, 27). Thus:

[I]f we concede to priority of possession the undisturbed use of land, confiscating rent for the benefit of the community, we reconcile the fixity of tenure which is necessary for improvement with a full and complete recognition of the equal rights of all to the use of land.

(ibid., Bk 7, Ch. 1, Sec. 27)

Although the Georgist case for the socialization of the rental value of land therefore constitutes a form of left-libertarianism – geo-libertarianism – it is important to note that it is a highly distinctive form which incorporates features not shared by other, perhaps more familiar, left-libertarian conceptions. One of the most distinctive features of geo-libertarianism is its utilization of rent theory to establish the injustice of the institution of full private property in land. As we will see in the next section, the idea of rent – used as part of what I refer to as the geo-classical theory of distribution – plays a crucial role in demonstrating how the institution of full private property in land results in the systematic exploitation of non-land-owning citizens and greatly impedes economic activity. For this reason, I believe that geo-libertarianism is more relevant to the most serious practical problems facing the citizens and governments of contemporary liberal societies, and to the debate between classical and social liberals about the degree to which markets should be controlled and regulated by the state, than other forms of left-libertarianism which do not incorporate the geo-classical theory of distribution.[2]

Geo-Libertarianism and the Absolute Prioritization of Unorthodox Market Freedom

Like other libertarian conceptions, geo-libertarianism endorses the absolute prioritization of what I have referred to as market freedom. But as a left-libertarian conception, it endorses the prioritization of a form of market freedom which is radically different from the orthodox form of market freedom to which right-libertarian conceptions assign absolute priority. The possibility of a distinction between ‘right’ and ‘left’ libertarian conceptions arises from the substantive indeterminacy of the core idea of libertarian thought, the principle of self-ownership. As we have seen, the idea of self-ownership derives from the view expressed by Locke that ‘every man has a property in his own person’, and refers to the possession of each individual of all the rights of exclusive use over their own bodies that are normally associated with property in external goods. Since full self-ownership consists in the possession by individual agents of a broad range of the most important ownership rights – including control rights over the use of one’s body, rights to compensation if one’s body is used contrary to one’s wishes, and enforcement rights that secure these control and compensation rights – the protection of the right to self-ownership is thought to provide each individual with basic protection against unwanted interference in their lives and choices.

However, the right to self-ownership does not in itself guarantee anything much in the way of individual freedom, since it is only in conjunction with an account of how material goods – the world within which people live and work – may be appropriated and owned that the right to self-ownership has any substantive implications. In libertarian theory, the power to appropriate land and natural resources usually takes the form of some kind of unilateralist ‘first possession’ conception, according to which agents acquire rights over natural resources by being the first to claim these rights. Such conceptions are again thought to derive from Locke, who argued that it is by ‘mixing’ their labour with the external world that individuals can come to own material goods: those who own themselves also own their own labour, and anything that a person ‘removes out of the state that nature hath provided … he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property’ (1764 [1689], Bk 2, Ch. V, Sec. 27). Radical libertarians like Jan Narveson (1999) hold that natural resources can be privately appropriated without this generating any requirements of compensation for those who have been unable to appropriate a share of these resources. Once these resources have been privately appropriated, they become the legitimate private property of the appropriator, whose right to self-ownership is violated if his or her rights of private property are violated.

Robert Nozick (1974), by contrast, utilizes an interpretation of another idea that derives from Locke – the so-called ‘Lockean proviso’ (Locke, 1764 [1689], Bk 2, Ch. 5, Sec. 27) – interpreted by Nozick to mean that no individual is to be made worse off by someone’s private appropriation of land and natural resources compared with a situation in which the resources in question were unused or unappropriated (1974, pp. 174–182. On this account, the original appropriation by an individual of a share of natural resources is justifiable, if the result of this appropriation is an improvement in the condition of those who are prevented from appropriating this share, even if the share in question is disproportionately large, such that no natural resources are left for others to appropriate. And in Nozick’s view, acts of original appropriation are highly likely to improve the condition of non-appropriators, since the private property generated by original appropriation ‘increases the social product by putting means of production in the hands of those who can use them most efficiently (profitably)’, thereby generating wealth that would not otherwise exist (ibid., p. 177). As David Schmidtz puts it:

[Original appropriation] diminishes the stock of what can be originally appropriated, at least in the case of land, but that is not the same thing as diminishing the stock of what can be owned. On the contrary, in taking control of resources and thereby removing those particular resources from the stock of goods that can be acquired by original appropriation, people typically generate massive increases in the stock of goods that can be acquired by trade. The lesson is that appropriation is typically not a zero-sum game. It normally is a positive-sum game.

(Schmidtz and Goodin, 1998, p. 30)

On the basis of his endorsement of the principles of self-ownership and original appropriation, Nozick argues that principles of justice should take the form, not of principles that assess the justice of the distribution of wealth in terms of its conformity with some apparently desirable ‘pattern’, such as substantive equality, but rather of ‘historical’ principles of justification that assess the justice of any given distribution of wealth in terms of the justice of the history or process by which this distribution has arisen (1974, pp. 150–174). If a particular distribution of wealth has arisen from a series of fair transactions and transfers of wealth that are the product of justly acquired land and natural resources, then this distribution of wealth is just. On this view, a particular distributive pattern – such as one that requires the maximization of the position of the least advantaged members of society – can be generated only by violating the legitimate ownership rights of those from whom the taxes necessary to generate the desired pattern are extracted (ibid., pp. 160–164).

Unlike classical liberals such as Hayek and Friedman, then, Nozick comes close to adopting a no tolerance approach to the restriction of rights of private ownership and freedom of contract, assigning absolute priority to the protection of the market freedom that these rights secure. Like Richard Epstein (1985), Nozick used a kind of functionalist, consequentialist explanation for his prioritization of market freedom, inasmuch as he held that the justice of the distribution of property depended on the justice of the original appropriation, which in turn depended on the productive positive-sum nature of the original appropriation (thus satisfying the Lockean proviso). Unlike Epstein, however, Nozick provided no explicit justification for his prioritization of a specifically orthodox conception of market freedom, simply assuming without much argument that his functionalist view justified the prioritization of this specific conception rather than the prioritization of an unorthodox conception, which attaches stronger conditions to the ownership of non-privately created land and natural resources than to privately created income and wealth.[3]

As a left-libertarian conception, the geo-libertarian view is that the original appropriation of natural resources is likely to be much more of a positive-sum institution if the protection of rights of private ownership in respect of such resources is conditional on the contribution, by private appropriators, of the full rental value of the resources that each has appropriated to the community in whose interests the institution of private property is secured by the relevant public authority. On this view, while the productive utilization of natural resources that the private appropriation of these resources makes possible is indeed a positive-sum event, the private appropriation of the rental value of these resources is a negative-sum institution: private landowners gain at the expense of the providers of labour and capital. The rights of citizens to the fruits of their labour are thus undermined by the private appropriation of the socially created surplus (rent), and the socialization of this surplus is therefore essential to the effective protection of these rights. In other words, market freedom – the freedom to create and acquire holdings of private property and to utilize these holdings in the pursuit of a conception of the good – is secured as much through the socialization of rent as it is through the protection of the rights of private ownership: the socialization of rent and the protection of rights of private ownership are two sides of the same coin. This is the unorthodox conception of market freedom – real market freedom.

From a geo-libertarian perspective, any socio-economic inequalities that arise as a result of variations in the success with which labour and capital are applied to land and natural resources are justifiable on the basis of the principle of self-ownership: this principle demands the absolute prioritization of market freedom, and such inequalities can be mitigated or eliminated only by restricting or eliminating market freedom. However, socio-economic inequalities that arise from variations in the amounts of rent that individuals can privately appropriate are unjustifiable, restricting market freedom and violating the principle of self-ownership. Geo-libertarianism is therefore distinct from both classical and social liberalism, both in terms of the unorthodox character of the conception of market freedom that it prioritizes, and in terms of the strength of the priority that it assigns to this form of freedom.

However, while geo-libertarianism assigns absolute priority to market freedom, it is not the case that any conception of political justice which attaches some degree of importance to (real) market freedom must assign absolute priority to this form of freedom: classical and social liberal theories of justice might have good reasons to assign a degree of importance – whether intrinsic or instrumental – to the protection of market freedom, while at the same time assigning importance to other values against which the protection of this form of freedom might have to be balanced. For this reason, I believe that it is worth looking in more detail at certain features of the geo-libertarian conception of justice in order more fully to understand its virtues and identify its problems. The idea is that this will yield a geo-liberal, rather than geo-libertarian, version of Georgism which will be much more relevant to the contemporary debate between the proponents of classical and social liberal theories of justice, and much less vulnerable to liberal critiques of the ideas of natural rights and self-ownership. To a certain extent, the economic ideas and arguments developed by Henry George – what we might call ‘geo-classical economics’ – can be separated and discussed in isolation from the broader libertarian framework within which they were set in Progress and Poverty, and since any geo-liberal approach must incorporate at least some of these ideas and arguments, it is important to identify those that can be revised, modernized, and retained, and those that must be rejected. This I do in the next section.

A Critical Assessment of the Geo-Classical Theory of Distribution

How (In)Accurate Were George’s Predictions?

I begin this section by highlighting what was arguably the most obvious mistake made by George in presenting his case for the taxation of the rental value of land – namely, the apparent inaccuracy of the predictions he seemed to make concerning the effects of economic progress on the position and prospects of the working poor. As we have seen, George argued that the socialization of rent is necessary because productive advances generated by agglomeration and improvements in methods of production and exchange do not increase wages or interest but only rent, a process which is exacerbated by the speculation in land values that is made possible and encouraged by the institution of private property in land. In the absence of the socialization of rent, material progress – which cannot rid people of their dependence on land – ‘can but add to the value of land and the power which its possession gives’ (George, 1920 [1879], Bk 5, Ch. 2, Sec. 31).

What George seemed to be saying was that if economic rent remained largely privately appropriated, then the working poor would gain no material benefit from material progress, no matter what the strength or speed of this progress might be. Yet many would argue that, since the late nineteenth century, something very much like the opposite has occurred: land values have remained largely in private hands, while the standard of living enjoyed by the vast majority of the citizens of liberal democratic societies, including the poorest, has dramatically improved, as economic productivity and growth have been driven forward by massive technological innovation and population expansion. As many classical liberals have been keen to point out,[4] citizens’ opportunities to pursue their individual conceptions of the good have been radically enhanced by the enormous progress that has occurred during the course of the twentieth century. It might be suggested on this basis that George was entirely mistaken in his expectations concerning the condition of the working poor, and therefore mistaken in his analysis of the laws regulating the production and distribution of wealth.

In reply to this general rejection of the Georgist paradigm, it can be argued in the first place that even if George’s expectations with regard to the future distribution of the benefits of progress were entirely mistaken, it does not necessarily follow from this that his analysis of the laws of production and distribution was entirely mistaken. It seems plausible to suggest that any improvement in the living standards and prospects of the citizens of liberal societies since the late nineteenth century has been at least to a certain extent the result of interventionist policies implemented during the twentieth century, such as progressive redistributive taxation, the regulation and standardization of working practices, and the provision of social welfare programmes. Although George favoured the abolition of private property in land through the taxation of its rental value as the most effective way in which to break the connection between progress and poverty, he did not think that other more interventionist methods would be entirely unjustifiable and ineffective (ibid., Bk 6, Ch. 1). It was just that, in his view, these approaches would be far less efficient and far less consistent with the fundamental principles of a free society than the taxation-based remedy that he proposed.

More importantly, however, it is in any case not clear that George was entirely wrong in predicting the continuation of poverty in conjunction with progress, or in identifying the increase of rent at the expense of wages and interest as the explanation for this phenomenon. As we shall see more clearly in Chapter 4, it is by no means evident that the huge economic growth that occurred in liberal societies during the twentieth century has improved the opportunities of the least advantaged members of society as significantly as classical liberals often like to suggest: a vastly improved general standard of living (the reality of which cannot be disputed) does not necessarily translate into a vastly improved set of opportunities to pursue the widest possible range of reasonable conceptions of the good. Even with significant redistributive and regulatory intervention in the free market system, it seems plausible to suggest that the opportunities of the citizens of modern liberal societies to live their lives as they see fit are nothing like as extensive as they might be, particularly in relation to ‘post-productivist’ conceptions of the good which incorporate predominantly non-materialistic values and practical aims.

Moreover, as Thomas Picketty (2014) and others (Atkinson, 2015; Drennan, 2015; Stiglitz, 2013) have shown in recent years, the depth of socio-economic inequality in liberal democratic societies has been increasing rapidly since the late 1970s, with the dominance of neo-liberal pro-‘free market’ ideas and policies resulting in huge incomes and capital gains for the top 1 per cent of the population, together with very slowly rising or even stagnating wages and living standards for everyone else. What this means is that socio-economic inequalities in liberal societies (particularly the United States) in the early twenty-first century are similar in degree to those that existed in these societies in the early twentieth century (Picketty, 2014, pp. 23–24). Picketty’s research suggests that much of the rise in living standards enjoyed by the vast majority of citizens in these societies since the late nineteenth century was facilitated by the high rates of economic growth that followed the massive destruction of capital caused by the two World Wars of the twentieth century, which removed a large proportion of the advantages and privileges which would otherwise have been enjoyed by the richest property owners in these societies (ibid., pp. 15, 140–163).

For these reasons Picketty challenges the idea, associated most notably with economist Simon Kuznets (1955), that in fully developed ‘free market’ capitalist societies economic growth tends to narrow the income disparity between rich and poor citizens (Picketty, 2014, pp. 11–15). Picketty suggests that in the absence of the destruction of capital caused by the two World Wars, and without the high rates of progressive taxation that were imposed in liberal societies from 1945 to the late 1970s, the returns to capital would probably have exceeded the rate of economic growth in these societies, with the result that socio-economic inequalities would be even more significant than they currently are – more like those that were characteristic of the nineteenth century than those that were prevalent for much of the twentieth (ibid., pp. 11–27). While this analysis, even if it is entirely correct, of course in no way confirms the Georgist analysis of the laws of economic production and distribution, it would seem to suggest that George was not entirely, or even substantially wrong in predicting the continuation of poverty in conjunction with progress. Whether George was correct in identifying the increase of rents at the expense of wages and interest as the explanation for this phenomenon is of course an entirely separate question.

However, even if George was not entirely wrong in forecasting the continuation of poverty amidst plenty, he was certainly not entirely right in suggesting that the condition of the working poor would not improve in the absence of the socialization of rent. One mistake which George undoubtedly made was to overemphasize the ‘labour-saving’ effects of improvements in methods of production, and to underemphasize the ‘landsaving’ effects of these improvements: many technological improvements and inventions are land-saving rather than labour-saving, and therefore reduce demand for land rather than increase it (Whitaker, 1997, p. 1902). Modern high-rise buildings, for example, greatly enhance the efficiency with which both residential and urban land can be used, as do roads and other transportation networks which allow providers of labour to live further from the locations in which their labour is applied, and the extraction of fossil fuels and other mineral resources which can be substituted for highly inefficient human and animal labour power (Gaffney, 2000). If technological developments allow land to be utilized more efficiently, so that a given amount of wealth can be produced with less land, or more wealth with the same amount of land, then the effect of these developments will be to reduce the demand for land. If the demand for land is reduced while the demand for labour and capital is not, then rents will not rise at the expense of wages and interest. The phenomenon of land-saving improvements therefore helps to explain why rent has not swallowed up all of the gains from material advances achieved since the late nineteenth century, and why the returns to labour and capital have in fact risen as a result of this progress.[5]

This does not mean, however, that rising rent is not an important part of the explanation for the persistence of the poverty that results from excessively low wages and high living costs, or that this poverty would not be alleviated or even eliminated by socializing rent and abolishing the institution of full private property in land. In spite of all of the land-saving improvements that have been made since the late nineteenth century, the demand for land in contemporary liberal societies is higher than ever, as the wealthy demand bigger and larger numbers of houses and recreational facilities, while ever larger populations require more and more land for residential and commercial development. It seems plausible to suggest that an important part of the explanation for the relatively low wage rates that have prevailed in many such societies (particularly the United States and the United Kingdom) since the late 1970s is likely to be the increasing rent that arises from ever higher demand for land.[6] This is certainly a suggestion which is worth taking rather more seriously than it has been by most contemporary mainstream economists and liberal political theorists.

However, before looking more closely at the part played by rising rent in the emergence of the ‘New Inequality’, I shall consider an early criticism of George’s work, one which focused on his argument that speculation in land values is a socially harmful activity that drives rents artificially high and causes, or at least strongly exacerbates, the socially destructive boom-bust economic cycle.[7]

Is Land Speculation Socially Destructive?

As we have seen, George argued that speculation in land values – which occurs when sites are acquired for the purpose of making profits from the expected rise in the future value of these sites, rather than from revenues generated by using the site for productive purposes – is not socially useful in the way in which speculation in manufactured goods or extracted resources often is, since the supply of land is fixed and therefore cannot be increased to balance the high demand that is both the cause and consequence of speculation in its value. Critics of George have argued, however, that speculation in land values improves the efficiency with which sites are utilized, since a professional speculator is likely to recognize when it is more efficient, and therefore more financially rewarding, to delay development on a site until such time as the prevailing economic conditions justify the construction of a larger and more productive development than could be justified by the prevailing economic conditions at an earlier time (Bentick, 1979; Ely, 1920; Rothbard, 1997, pp. 300–302). If it is more profitable to keep the site vacant during this interim period than it is to construct a smaller and less productive building, which must, when the time is right, be torn down in order to provide the space for the larger and more productive building, then the speculative activity which results in this site being held out of use for the appropriate amount of time will improve the efficiency with which the site is utilized, and is therefore a socially useful activity (Foldvary, 1998, p. 624). The socialization of rent, it is thus argued, would remove the financial remuneration for socially useful speculation in land values, and would result in the initial over-development, and then the subsequent later under-development, of valuable sites.

In response to these kinds of arguments geo-classical thinkers have argued that any benefits which might be generated by socially useful speculation in land values are highly likely to be outweighed by problems arising from socially destructive speculation (Foldvary, 1998; Gaffney, 1994; Tideman, 1995). The main reason for this is that when ‘investors’ demand land not as a productive resource but rather as an asset that (seemingly) constantly appreciates (in contrast to capital, which depreciates), speculation ceases to be an activity which is undertaken predominantly by ‘professional’ speculators who know how to ‘read the market’ and forecast the economic future, and becomes instead an activity undertaken by anyone with enough money to ‘follow the herd’ by paying huge sums for over-priced assets (Gaffney, 1994, p. 90). Such speculation is financed by the easy credit extended by banks and other financial institutions which see rising land values as a safer and more lucrative prospect than firms seeking to make profits by utilizing constantly depreciating capital and heavily taxed labour to produce goods and services in competition with other firms (ibid., p. 89). As Mason Gaffney puts it, ‘[t]he basis of credit is not marginal productivity but collateral security’ (ibid., p. 89).

When demand for land as a constantly appreciating asset has driven prices artificially high, the land-saving investments of capital that these high prices encourage are more likely to be wasteful and inefficient than productivity-enhancing. Artificially high land values are likely to distort patterns of development so that sites that are located far from centres of commerce and residential development are used productively because more valuable sites located in areas which are more appropriate for development are too dear for investors in productive enterprise to acquire, or are simply held unused or underused by speculators who ‘free-ride on the future’ (ibid., p. 93). The infrastructure and transportation networks which must then be put in place in order to make peripheral sites productive are expensive to provide and consist of fixed capital which circulates very slowly, reducing the amount of ‘liquid’ capital in the economy (Foldvary, 1998, pp. 626–629; Gaffney, 1994, pp. 92–94). On the other hand, when valuable sites closer to commercial and residential centres are acquired and developed, despite the high prices that must be paid for them, such sites are often over-developed as investors seek to justify their high expenditures for their sites by ‘forcing the future’ – constructing buildings that are too large to be fully productive in the prevailing economic environment, thereby wasting capital (Foldvary, 1998, p. 630; Gaffney, 1994, pp. 91–93). And when land values are rising rapidly, the owners of valuable sites have less incentive to set aside part of their incomes as Capital Consumption Allowances which can be invested and used for replacing and reproducing depreciated capital, since the income obtainable from increasing rents can serve as a substitute for a proper CCA, allowing landowners to conserve their wealth without having to conserve their capital (Gaffney, 2000). Thus, by driving the price of land artificially high, speculation in land values results in the misallocation, the mal-investment, and the destruction of capital.

On the geo-classical view, speculation in land values culminates ultimately in socially destructive economic instability, causing land price bubbles which inevitably result in a slump in productive activity when they burst. Geo-classical thinkers argue that by preventing speculation in land values,[8] the socialization of rent would lessen the severity and destructive impact of the boom-bust economic cycle, reducing both the height of the peaks and the depth of the troughs (Gaffney, 1994, pp. 91–94; Harrison, 1983, 2007; Hodgkinson, 2008, pp. 313–322). By ensuring the continual socialization of existing rent, the taxation of land values would provide a stimulus for the productive utilization of valuable land, penalizing the inefficient usage and under-development of sites for which demand is high. And by preventing the private appropriation of rising rent, the taxation of land values would constitute a natural braking mechanism which would ensure that land values never reach the artificially high levels characteristic of the ‘manic’ phase of a land speculation-induced economic boom, when demand for land as a rapidly appreciating asset, fuelled by the provision of easy credit from financial institutions, takes the place of demand for land as a productive resource.

Although the geo-classical explanation of the boom-bust economic cycle was strongly emphasized by Henry George, and is obviously an important area for future research, it is not central to the case for the socialization of rent, and the issues involved are far too complex to allow for a detailed discussion in this book. The point I want to make here is simply that the rejection of the idea of the socialization of rent on the basis of the supposed economic benefits of speculation in land values has not been in any way substantiated by those who have rejected it on this basis. The arguments developed by geo-classical economists in response to this view are plausible and compelling. But might the value of land be said to be at least to a certain extent privately rather than socially created, and if so, then is the case for the socialization of rent not to this extent undermined?

To What Extent Is the Rental Value of Land Socially Created?

Central to the geo-classical conception of the rental value of land is the idea that the rental value of a given site arises entirely independently of any actions undertaken by the private owner of this site. If this is the case, then it seems plausible to suggest on the basis of the principle of self-ownership, first, that it is unjust to tax privately created income and wealth if the value of land remains untaxed, and, second, that it is in any case unjust not to socialize value which is entirely socially created. Against this core geo-classical claim, it has been argued that in many cases the rent arising on valuable sites is in fact often largely privately created, the result of productive economic activity undertaken by the private owners of the valuable sites in question (Hooper, 2008). For example, if a site suddenly becomes valuable because a use for which this site is particularly well suited is discovered by an entrepreneur, then is this value not created by the entrepreneur, rather than by the government or the wider community (Gochenour and Caplan, 2013)? And if a large organization – say, Disney Land – develops an area of land to such an extent that much of the surrounding land becomes significantly more valuable, then is this added value not created by the large organization in question rather than by the public authority or the wider community (Hooper, 2008)? If this large organization happens also to be the private owner of the surrounding land that has become more valuable as a result of its activities, then surely, one might argue, the private appropriation of this value by the large organization in question is fully justified.

From a slightly different perspective, even when increased land values derive from economies of scale and network effects (agglomeration), and from general improvements in methods of production and exchange rather than productive activity for which one agent can be held personally responsible, one might wonder whether most of this value is actually created specifically by those engaged in the relevant agglomeration, and by those who can be held personally responsible for the innovations and inventions which have improved the methods of production and exchange. In other words, even to the extent that land value is ‘socially created’, this value will never be attributable equally to all those engaged in social cooperation. Some providers of labour and capital are more productive than others, some provide more efficiency-enhancing improvements in methods of production and exchange than others, and some are more willing to participate economically than others. Those who provide more improvements and are more productive generate more land value than those who are less productive. In what sense, then, can it legitimately be argued that land value should be socialized because it is ‘socially created’?

A geo-classical proponent of the socialization of rent might respond to these points by arguing that while rent might be said to be to a certain extent in some sense ‘privately created’, it is clear that it is largely socially created. The vast majority of valuable sites are valuable not because of the discovery of some particularly suitable use by a perceptive entrepreneur, or because of the existence of a single particularly large adjacent development, but because the ongoing economic activity undertaken in surrounding locations makes these sites highly suitable for certain economic purposes which are readily obvious to any minimally rational observer, and because the relevant public authority provides services and infrastructure which make this economic activity possible. For example, plots of land in the middle of town and city centres are obviously highly suitable as retail and other commercial sites, and are highly valuable as such, while sites adjacent to these commercial centres are obviously highly suitable for residential development, and are highly valuable as such (Foldvary, 2014, pp. 453–454). The value of sites suitable for commercial utilization or development is generated partly by the existence of other such sites in the area (which attracts customers and generates a high ‘footfall’), partly by the proximity of large residential areas which generate large numbers of potential customers with access to sufficient financial resources to make commercial activities profitable, and partly by the roads, railway stations, bus networks, electricity and drainage systems, and all the other public goods and services that attract customers from further afield and create the conditions within which productive economic activity can take place (Hodgkinson, 2008, p. 73). Similarly, the value of sites suitable for residential development is generated partly by their proximity to commercial centres, and partly by the proximity of other residential sites and other publicly provided goods, such as schools, hospitals, parks, railway stations, and so on (ibid., p. 73).

When an entrepreneur discovers a use for which a certain site is particularly suitable (including the discovery of large quantities of extractable natural resources), the rewards for such a productive contribution take the form of profits generated by the investments of capital and labour subsequently applied on the site in question. Such surpluses are privately created property, and are not part of the rental value of land (Foldvary, 2014). In the case of land values which are enhanced by developers who ‘are their own neighbours’, it is true that a certain amount of the value that such landowners have privately created might be taxed away if rent is socialized. But it is also the case that such landowners will appropriate a very considerable amount of socially created value if no rent is socialized, since the value of the large site that they own will derive mainly from the economic activity performed throughout the much larger surrounding area within which it is located, as well as from the provision of public goods and services. Even in these unusual circumstances, then, the socialization of rent would seem to make more sense than its private appropriation.[9]

Finally, in the case of land value, which is socially created but which cannot be attributed equally to all those engaged in social cooperation, it is highly unlikely that those who appropriate the rent that arises on valuable sites which are privately owned will be the same people as those who can be held personally responsible for the especially productive economic contributions that generate the high values of these sites. If a highly trained, highly talented, and highly motivated individual chooses to move to a particular location in order to put herself in a position to exercise her talents and skills productively, then it may reasonably be assumed that land values in this location will already be high and rising, boosted by the agglomeration which provides the economic environment within which talents and skills can be exercised productively. In order to obtain the right to privately appropriate the rent that arises on the site to which she has chosen to move, the recently arrived highly productive individual must acquire this right by paying whatever the current owner of the site asks for the freehold of this site. And the price that the current owner can ask for this freehold will be determined in part by the amount that the recently arrived highly productive individual can afford to pay – that is, by the wages that the individual can expect to earn by moving to this highly productive location.

In other words, the selling price of the site in question is its capitalized rental value, which is increased by the decision of the highly productive individual to move to the area. Any extra land value which can be attributed to the skills, talents, or motivation of this highly productive individual will be appropriated not by her but by the current owner of the site to which she chooses to move. In any case, the individual in question is unlikely to be in a position immediately to obtain full ownership of the site in question, and will therefore be compelled to pay rent to a private landowner (whether in the form of actual ‘rent’ paid to a landlord, or in the guise of ‘mortgage interest’ paid to a mortgage provider) until such time as she can afford to acquire outright ownership of the freehold. For these reasons, it is highly unlikely that reducing the amount of tax that is imposed on highly valuable sites located in or near flourishing commercial centres will benefit the people who make the productive contributions that generate the higher land values in these locations.

If it is accepted that a certain amount of land value is in some sense ‘privately created’, and if socially created land value cannot be attributed equally to all of the participants in social cooperation, then it is just about conceivable that the full socialization of rent might constitute a restriction of the market freedom of those making the most productive contributions, though for the reasons identified in the previous three paragraphs, it is highly improbable that these would be anything more than very minor restrictions. Does this then mean that the justice of the imposition of taxation on the rental value of land would depend upon the feasibility of distinguishing between privately and socially created land value, and of identifying the more productive participants in social cooperation? If so, then the obvious worry would be that the extensive administrative costs imposed by the need to measure the size of the unearned increment in each case would significantly reduce the value of all such increments, rendering the attempt to socialize them redundant. Might there then be something to the claim made by Richard Epstein (1998, p. 27) that we are all better off in the long run,

if the surplus in things remains well defined with a single owner, than if each and every owner surrenders some of what he has acquired in exchange for the right to some portion of the surplus of lands acquired by others?

Perhaps Epstein’s claim would need to be taken seriously if the justice of the socialization of rent did depend upon the feasibility of distinguishing between privately and socially created land value, or of accurately measuring the size of the unearned increment in each case. But it does not, for the following reason. The interests of the few highly productive individuals who might conceivably have the opportunity to appropriate the rental value of the sites that they own if this value is not socialized are massively outweighed by the interests of the vast majority of citizens who engage in the economic activity from which most of the rental value of land derives: the full socialization of rent would result in a minor restriction of the market freedom of the former; by contrast, the private appropriation of rent would result in a serious violation of the market freedom of the vast majority of citizens. It is therefore plausible to suggest that the protection of market freedom can be achieved most effectively by taking the full rental value of land as a proxy for socially created land value, and by aiming to socialize as much as is feasible of the whole of this value.

This particular socio-economic institution is, like any other, imperfect. But it cannot be rejected on this basis alone. As George (1889) put it, theoretical perfection ‘pertains to nothing human. The best we can do in practice is approach the ideal’ (cited in Andelson, 2000). Of course, one might argue that the aim of socializing the full rental value of land might itself be prohibitively costly, even in the absence of any attempt to distinguish between privately and socially created rent: ‘as much as is feasible’ might turn out to be less than is worthwhile. I address this argument in Chapter 6 when I consider the practical implementation of land value taxation. There I conclude that while there are, of course, a range of problems of implementation which must be overcome if the full rental value of land is to be substantially socialized, there is no reason to think that these practical problems are any more significant than those associated with the implementation of most other forms of tax, and certainly no reason to suppose that the implementation of land value taxation would not be very worthwhile.

What Is Distinctive About Land and the Rental Value of Land?

Even if one accepts the arguments thus far presented in defence of the proposal to socialize the rental value of land, one might question whether the socialization of economic rent is something that can be achieved through the taxation of land values alone, and even whether land value taxation would be in any way helpful in achieving this objective. Are there no other sources of value which must be taxed if the economic process is to be made as stable, efficient, and productive as possible, and if rights of private ownership in respect of privately created income and wealth are to be properly protected? What is distinctive about the value of land as opposed to the wages of labour, the interest on capital, and the profits of entrepreneurial enterprise? Critics of the Georgist view have argued that there is in fact nothing distinct about land as a source of socially created rent: labour, capital, and entrepreneurial enterprise also generate rents, and there is no reason why these rents should not be taxed as heavily as, or even instead of, the rent of land.

This rejection of the idea of land as a distinct factor of production was perhaps the central plank of the early neo-classical critique of what I am calling ‘geo-classical’ economics, the Georgist interpretation of the classical economics of Smith, Ricardo, and Mill. The classical economists identified land, labour, and capital as three distinct factors of production, theorizing that the product of applications of these three factors was divided among the social classes associated with each factor, with landlords receiving rent, workers receiving wages, and capitalists receiving interest. Henry George’s theory of distribution was a special case of this general theoretical approach. J. B. Clark, a central figure in the emergence of marginal productivity theory and neo-classical economics, attempted (with some considerable success) to undermine the Georgist theory of distribution by eliminating any distinction between land and capital as factors of production, thus establishing a ‘two-factor’ economic model as the basis of the emerging neo-classical paradigm (or a ‘three-factor’ model if the ‘entrepreneurial function’ is included as a factor) (1908 [1899], Ch. 1). Clark (1890) distinguished between ‘pure capital’, the value created by producers, and ‘concrete capital’, the things in which this value is embodied: pure capital, he argued, may be said ‘to live by transmigration’, and to ‘perpetually change its outward forms’, and is encouraged, through the equalization of returns, to ‘vest itself’ in land, which then becomes a form of concrete capital (cited in Dwyer, 1982, p. 364).

Clark’s elision of land and capital was very clearly reflected in his interpretation of marginal productivity theory, the basis of which was that there is ‘a natural law according to which the income of society is divided into wages, interest and profits’ (1908 [1899], Ch. 1, Sec. 1). This ‘natural law of distribution’ – which applies only against a background context of free competition among the providers of the factors of production – states that the distinguishable share in production attributable to each economic agent is matched by a corresponding economic reward (ibid., Ch. 1, Sec. 6). Thus, free competition ensures that the earnings of labour (wages) reflect what labour creates, the earnings of capital (interest) reflect what capital creates, and the earnings of the entrepreneurial function (profits) reflect what is created by the coordinating process that consists in ‘the establishing and maintaining of efficient relations between the agents of production’ (ibid., Ch. 1, Sec. 4–5).

The problem of distribution as identified by Clark was therefore the problem of proving the truth of this natural law, and, in Clark’s view, this problem was of ‘measureless’ importance: the very ‘right of society to exist in its present form’ was at stake (ibid., Ch. 1, Sec. 6). For if this law of distribution could be proved to be true, then the revolution-fomenting claim that labour in a liberal society is exploited – that workmen in such societies ‘are regularly robbed of what they produce … within the forms of law, and by the natural working of competition’ – would be shown to be false, and the ‘stability of the social state’ would be enhanced by the awareness among the labouring classes that what they receive is what they produce (ibid., Ch. 1, Sec. 7). In Clark’s view, property has not been protected ‘at the point of its origin’ – that is, at the point where the possession of wages, interest, and profits begin in the payments made by producers for the factors of production – unless actual wages are equal to the whole product of labour, actual interest is equal to the whole product of capital, and actual profits are equal to the whole product of the coordinating function (ibid., Ch. 1, Sec. 15). The truth of Clark’s law of distribution would demonstrate that the principle upon which the institution of private property is supposed to rest – the rule ‘to each what he creates’ – is indeed satisfied by the industrial system (ibid., Ch. 1, Sec. 16).

Associated with the marginal productivity theory of distribution is the idea of a ‘quasi-rent’, a short-term rent consisting in the difference between the actual earnings of a factor of production in its most productive use and the ‘opportunity cost’ of this factor – the amount this factor would have earned in its next most productive alternative use. According to the analysis developed by so-called ‘neo-classical’ economists like Clark and Alfred Marshall (1920 [1890]), the difference between actual earnings and opportunity cost is a rent because such a difference can exist only when the supply of a factor is fixed so that it is relatively scarce in relation to the demand for it. The rent earned by a specific factor consists in the earnings of this factor that exceed the amount which would need to be paid to keep this factor in its current employment. However, such a rent is a short-term or ‘quasi’ rent because, in the long run, the supply of factors is not fixed and can be increased to make factors less scarce, and ultimately to match the demand for them. For example, the difference between the actual earnings of a unit of highly specialized machinery and the ‘transfer price’ of this machinery – what it could earn in its next most productive use (which might be zero) – is a short-term rent which will in the long run be competed away when the supply of such specialized machinery is increased to match the demand for it. Similarly, the difference between the actual earnings of, say, a teacher and the amount the teacher could earn in the next most remunerative employment – say, as a secretary – is a short-term rent which in the long run will be competed away when more people train as teachers and thereby increase the supply of this factor to match the demand for it.

Because land is generally highly mobile among alternative uses, the transfer earnings of productive sites are often very large, and the quasi-rents earned by such sites, and by land in general, are therefore often very small. For example, the difference between the actual ‘earnings’ of a commercial site being used by a bank and the amount this site would ‘earn’ when used as a law firm might be very small (Hodgkinson, 2008, p. 94). By contrast, labour and capital are often highly immobile among alternatives uses, since specialized machinery and highly trained or skilled labour can often be employed in the production of only a narrow range of goods or services, and cannot be transferred to many (or perhaps even any) other employments. The transfer earnings of these factors of production are therefore often very small, or even zero, so that they are likely to earn very large quasi-rents. For these reasons, the quasi-rents earned by land are likely to be relatively much less than those earned by labour and (other forms of) capital, and the imposition of a tax on the quasi-rents earned by labour and (other forms of) capital might appear to have the potential to generate far more revenue than the imposition of a tax on the rent of land (ibid., pp. 90–95).

The development of neo-classical economics therefore presented a serious challenge to geo-classical economic theory and to the case for the socialization of the rental value of land that is constructed on the foundations provided by this theory. In the first place, the status of land as a distinct factor of production upon which a special tax could and should be imposed was undermined by Clark’s elision of land and capital, and his reference to the three factors of labour, capital, and the entrepreneurial function in his interpretation of marginal productivity theory, an interpretation which was highly influential among later mainstream neo-classical economists (particularly American ones) (Blaug, 2000, p. 274). The implication of Clark’s theory of marginal productivity was that a tax imposed on the rental value of land is a tax imposed on privately created capital, and would not in any way help to ensure that workers are appropriately rewarded for the labour that they contribute to production.

The idea that the socialization of economic rent could be achieved via a special tax imposed on the rental value of land was then further undermined by the neo-classical economists’ generalization of Ricardo’s idea of rent to apply to any factor of production. Since the imposition of a tax on the quasi-rents earned by labour and capital will generate far more revenue than the imposition of a tax on the quasi-rent of land – which, due to the high mobility of sites among alternative uses, is often likely to be so small that it makes more practical sense to leave it in private hands – the modern notion of ‘economic rent’ developed by the neo-classical economists might plausibly be thought to support the imposition of a set of taxes designed specifically to target the part of wages and corporate profit that constitutes quasi-rent, rather than a form of property tax that could not possibly make anything more than a minor contribution to total public revenue.

Geo-classical thinkers have responded to the challenge of neo-classical economics not by completely denying or rejecting the achievements and insights of this tradition of economic thought, but rather by rejecting those aspects of the tradition which do not stand up to critical scrutiny, and by showing how the aspects that do stand up to critical scrutiny support, rather than undermine, the case for the socialization of rent through the taxation of the rental value of land. It is important in the first place to emphasize that the Georgist theory of distribution is entirely consistent with the marginal productivity theory of distribution, which, as we have seen, states that the prices of factors of production are (in conditions of perfect competition) equal to the marginal revenue product of each factor (the increment of revenue generated by the employment of an additional unit of each factor). This theory of distribution is clearly incompatible with Karl Marx’s critique of capitalism, which employed a labour theory of value in order to support the claim that capitalists pay workers, not the full value of the commodities they produce, but rather only the value of the ‘necessary labour’ provided by workers (the subsistence costs of maintaining workers’ productivity), thus enabling the capitalists to appropriate the value of the ‘surplus labour’ as profit. The Georgist critique of so-called ‘capitalism’, by contrast, is based on the claim, not that workers are paid less than what they add to the total product,[10] but that workers (and many capitalists) nevertheless tend to receive significantly less than they would receive with the rental value of land taxed and thereby socialized.

In his remarks on the injustice of the institution of full private property in land, George comes close to expressing a view which is not compatible with marginal productivity theory. As part of his argument that full private property in land is incompatible with ‘the right of property in the produce of labour’, George states that when non-producers ‘can claim as rent a proportion of the wealth created by producers, the right of the producers to the fruits of their labour is to that extent denied’ (1920 [1879], Bk 7, Ch. 1, Sec. 8). This might seem to suggest that ‘non-producers’ can claim ‘a proportion of the wealth created by producers’ only because this particular portion of the fruits of the labour of producers has been unjustifiably separated from what should be their wages, and then included in the rent that non-producers receive. Such a view would be incompatible with some of the central claims of marginal productivity theory, according to which the rent received by landowners is not ‘wealth created by producers’, but rather the proportion of the total product attributable to the economic factor defined as land. If ‘the right of the producers to the fruits of their labour’ is denied by the private appropriation of rent, then this cannot be because the ‘rent’ that is privately appropriated consists of ‘a proportion of the wealth created by producers’.

However, there are at least two ways in which we can interpret George’s remarks consistently with marginal productivity theory. First, it might plausibly be suggested that what he has in mind is the idea that rent is socially created, a result of the high demand for land that arises with the growth in population and the productivity of labour. Although rent is indeed the product of land, it is the existence and productive contributions of the community as a whole, rather than those of individual landowners, that generate the rental value of the land. There is nothing in marginal productivity theory which suggests that landowners can be held personally responsible for the product that is attributable to the land that they own. The obvious idea that then arises is that if anyone has a right to the product of land, then it must be those collectively responsible for the creation of this product, rather than those who happen to own the freeholds to valuable sites. On this view, the ‘right of producers to the fruits of their labour’ is protected if producers are able to claim collectively as rent the value of what they collectively create.

Another way in which we might interpret George’s remarks consistently with marginal productivity theory is by referring to his comments (see ‘Classical Political Economy and the Idea of the Socialization of Rent’ in this chapter) on the role of speculation in extending the margin of production beyond the point required by ‘the necessities of production’, and in this way driving wages down ‘to the point at which laborers will consent to work and reproduce’. Instead of being fixed by ‘the return which labour can secure from such natural opportunities as are free to it’, with full private property in land, the wages ‘which labor everywhere gets’ are now fixed by the scarcity of sites available for productive purposes – a scarcity which is the inevitable result of the speculation encouraged by the private appropriation of rent. Thus, we might say that when non-producers can claim as rent a proportion of the wealth created collectively by producers, rent rises higher as a proportion of total output – and wages fall correspondingly lower – than would be the case if non-producers could not privately appropriate the rental value that is created collectively by producers. To this extent the ‘right of the producers to the fruits of their labour’ is denied.

This line of argument has been elaborated by later geo-classical thinkers in the following way. The general level of wages is lower in a society in which the rental value of land is privately appropriated, because, in such a society, productive economic agents are prevented from enhancing their marginal productivity – and therefore their wages – by transferring their labour or capital to rent-free sites at the extensive margin of production, where their average revenue products are equal to their marginal revenue products (Hodgkinson, 2008, pp. 105–108). Were rent socialized rather than privately appropriated, the owners of valuable sites would be penalized for holding their sites out of production, and investors would have no incentive to acquire marginal and sub-marginal sites in order to profit when such sites become intra-marginal. What this means is that there would be much more land available for productive purposes with rent socialized than there is with rent privately appropriated. With more sites available for the productive purposes of the same number of producers, land would be used less intensively, and units of labour would be applied subject to fewer diminishing returns (ibid., p. 107). With labour applied subject to fewer (or perhaps even zero) diminishing returns, the marginal revenue product (MRP) of each unit of labour would be closer (or equal) to the average revenue product (ARP) of labour (ibid., pp. 106–107).

In other words, with land used less intensively by the same force of labour, the subsequent reduction (or elimination) of diminishing returns would increase both the MRP of labour and the wages of labour. Rent would fall as a proportion of output while wages would rise (ibid., p. 107). Since workers would have no reason to work for less than what they could earn by moving to rent-free marginal sites, employers on intra-marginal sites would have to pay employees at least the value of the ARP of labour applied on marginal sites. The general level of wages would therefore be set by the productivity of labour at the margin of production. But with rent privately appropriated, there are no such rent-free sites available. With the margin of production extended beyond the point to which it would extend if all intra-marginal sites were used for productive purposes, and with fewer sites therefore available for the productive purposes of the same number of workers, employers can now pay workers less than the average product of labour at the margin of production, since workers are forced to accept less than this for the opportunity to apply their labour, now that they no longer have the option of moving to rent-free marginal land.

Just how much less workers are willing to accept depends on a variety of factors, including levels set by any social welfare or minimum wage requirements that may exist – below which wages obviously do not descend – as well as workers’ and employers’ changing conceptions of what constitutes a minimally decent standard of living. But with the wage rate set to the level of the least that workers will accept, rather than to the level of the ARP of labour at the extensive margin of production, the owners of all sites, including marginal ones, are now able to charge a scarcity rent which reflects the difference between the lower wage rate and the ARP of labour at the margin of production. Since profit-maximizing firms employ labour up to the point at which the employment of an additional unit of labour would fail to increase production by enough to cover the cost of this additional unit – that is, up to the point at which the MRP of labour equals the wage rate – the MRP of labour is lower (reflecting the lower wage rate), while rent is higher as a proportion of total output (ibid., pp. 106–107).

Thus, the socialization of rent would provide workers with the opportunity to increase their incomes by raising the marginal productivity of their labour to its average productivity at the extensive margin of production, thereby making the productive utilization of land less intensive and eliminating scarcity rent. With rent privately appropriated, landownership is a zero-sum institution: private landowners collect the scarcity rent that is generated when workers are forced to accept less than the value of the ARP of their labour at the extensive margin of production. With rent socialized, landownership becomes a positive-sum institution: all citizens enjoy the right to utilize land for their own productive purposes, and to maximize the productivity of their labour and/or capital. Market freedom is enhanced by the socialization of rent, and restricted by its private appropriation.

Another way in which the private appropriation of the rental value of land violates market freedom is by diverting into private hands socially created value which would, if socialized, constitute a large part, and perhaps even the whole, of necessary public revenue.[11] With rent privately appropriated, a certain level of taxation must be imposed on productive economic activity, and the effect of this taxation will inevitably be to further reduce the level of real (post-tax) wages, and to distort and suppress the productive economic activity on which it is imposed, thus greatly diminishing the collective productivity of the providers of labour and capital. To the extent that non-landowning providers of labour and capital actually bear the burdens of taxation imposed upon them (rather than shifting their burdens on to producers in the form of higher wages and other production costs), they are effectively forced to contribute twice over towards the cost of public goods and services: first, through their payments of rent to private landowners; and second, through their tax burdens (including indirectly via the payment of higher prices for goods and services). For these people, the rent tax will be paid come what may – the only question is whether it will be collected privately or socialized and invested in public goods and services. The private appropriation of rent means that the cost of government must be covered by an additional tax imposed on economically productive agents, rather than solely, or at least predominantly, by the collectively created surplus.

However, the more significant effect of the imposition of taxation on productive economic activity is the negative impact that such taxation has on the activity on which it is imposed. When we consider why the imposition of taxation on production, employment, and consumption – predominantly in the form of taxes imposed on the broad bases of incomes, payrolls, and sales/added value – may reasonably be expected to distort and suppress economic activity, we can understand more clearly why the early neo-classical economists were mistaken in claiming that land is simply one specific form of capital upon which the imposition of a special tax makes no economic sense. Part of the significance of the idea of land as a distinctive factor of production is that it highlights the flaws in the neo-classical case for the imposition of broad-based taxation on production, employment, and consumption (henceforth: conventional taxation).

The distorting and suppressive effects of broad-based conventional taxation derive primarily from the impact of such taxation at both the intensive and extensive margins of production. Whether such taxes are borne ultimately by wage-earners, consumers, or producers, geo-classical economics tells us that they will always generate ‘deadweight losses’ and unemployment through their impact on those using sites at the margin of production. To the extent that income and sales/value added taxes are borne by wage-earners and consumers, the effect of such taxation is to reduce post-tax wages and raise prices for goods and services. Faced with higher prices for goods and services, and with lower post-tax wages to spend, wage-earners will naturally consume less of the output that firms produce. Reduced effective demand for goods and services means fewer goods and services being produced, which means lower profits and less employment, and therefore a fall (absolute, rather than proportional) in the rental value of land (Harrison, 2006, pp. 56–57; Hodgkinson, 2008, p. 174).

However, with the general level of wages already reduced by the scarcity rent that is the result of a restricted supply of sites available for productive purposes, most conventional taxation – whether it is imposed nominally on wage-earners and consumers (as with income and sales/value added taxes) or directly on employers (as with payroll and corporation taxes) – is borne ultimately by the producers of goods and services: competition among producers means that most of the higher production costs generated by consumption taxation are absorbed by firms; while employees already earning the least they will accept (for many, only just above the level set by welfare benefits) are likely to resist a fall in real wages by demanding higher nominal wages (Hodgkinson, 2008, pp. 174–178). In both cases, the tax burden is shifted on to rent in the form of higher production costs. Firms located on marginal (or near-marginal) sites, which have scarcity rental value but no (or very little) differential rental value, are unable to bear the burden that is shifted on to them, and are rendered sub-marginal and therefore unviable (ibid., p. 175). The result is closures (or a lack of start-ups) and unemployment in marginal locations. A further consideration is that a tax which is proportional to the wage rate will (from the point of view of the firm) be proportionately higher when imposed on the wages of less productive labour than when imposed on the wages of more productive labour (ibid., p. 286). Of course, the least productive labour is that employed at the intensive and extensive margins of production: for intra-marginal firms those units of labour, the MRP of which equals or is only just above the wage rate; and all labour employed by marginal firms. Thus, the imposition of such a tax deters the employment of more labour by intra-marginal firms and of any labour by firms located at or near the extensive margin of production (ibid., pp. 286–287).

In these (and many other[12]) ways, conventional taxation generates inefficiencies and deadweight losses, impeding, diminishing, and distorting economic activity in all locations, but most detrimentally in marginal and near-marginal locations. In the light of this analysis we can therefore identify two central problems with the imposition of conventional broad-based taxation: first, since conventional taxation fails adequately to differentiate between those agents who are (or may reasonably be expected to be) capable of bearing the burden of the tax, and those who are (through no fault of their own) incapable of bearing this burden, all such taxation imposes burdens on agents which cannot fully be borne by a substantial proportion of these agents; and, second, since conventional taxation bears on current actual production, employment, and consumption, agents on whom such taxation is imposed can reduce or eliminate future tax liabilities by reducing or eliminating the economic activity that forms the basis of the tax that they are unable to bear.

These are problems which do not apply in respect of a tax imposed on the rental value of land. As a factor of production, ‘land’ means everything in the universe which is not produced by human labour – including air, sunlight, and even three-dimensional space and the electro-magnetic spectrum, as well as more tangible forms such as mineral deposits, bodies and flows of water, and the physical surface of the Earth. Contrary to the assertions of J. B. Clark, land thus defined is a distinct factor of production which cannot be subsumed or melded with the factor of production referred to as ‘capital’ – productive wealth produced by human labour in conjunction with land. Land is both immobile in space, in the sense that specific sites cannot be shifted to another political jurisdiction or to a higher or lower value location, and uncontrollable in time, in the sense that the advantages or ‘services’ offered by each specific site cannot be ‘saved up’ and used at some later date, but must either be consumed as they ‘flow’ or not at all (Gaffney, 1994, pp. 47–53).

Most importantly, since land is neither produced nor reproducible by human labour[13] its total quantity is fixed (‘inelastic’), and cannot be raised or reduced in response to changes in the way in which socio-economic institutions affect the distribution of its earnings of rent. Of course, land may to a certain extent be substituted by land-saving capital, as when tall buildings increase the number of residential or commercial units that can be accommodated by a given site, or when roads and railways link peripheral locations with urban and commercial centres. But as we have seen, this kind of substitutability has its limits: land can never be dispensed with altogether, and the turnover of land-saving capital is extremely slow, so that excessive land-saving capital investment is wasteful and inefficient (ibid., p. 57). As Marshall himself acknowledged, though the difference between the elasticities of the supply land and capital is technically a matter of degree, the degree of the inelasticity of the supply of land compared to that of capital is so significant that it may reasonably be said that ‘from the economic and from the ethical point of view, land must everywhere and always be classed as a thing by itself’ (1920 [1890], App. G. 28). The difference between land and ‘other agents of production’, is that ‘from a social point of view land yields a permanent surplus, while perishable things made by man do not’ (ibid., App. K. 8/496).

Because the total supply of land is highly inelastic compared to the supply of labour and capital, the rent earned by land is a surplus which can be fully taxed without distorting production or generating any economic inefficiencies or deadweight losses, since landowners cannot react to the introduction of such a tax by reducing supply, while the demand for land remains the same after the introduction of the tax as before (Samuelson and Nordhaus, 1989, pp. 666–669). In contrast to conventional taxation, the formal incidence of land value taxation (LVT) is almost completely identical to the actual or effective incidence of the tax: the landowners on whom the tax is imposed cannot shift their burdens on to some other agent, such as a tenant (in the form of higher rents) or a consumer (in the form of higher prices for goods or services) (ibid., p. 668). The rents paid for the utilization of marginal residential sites and the prices paid for goods and services produced and sold on marginal commercial and retail sites set an upper limit for the rents that can be charged for the utilization of valuable intra-marginal sites, and for the prices that can be charged for goods and services produced and sold on valuable intra-marginal commercial and retail sites. And the imposition of LVT provides landowners with a strong incentive to set prices (whether for rent or for goods and services) competitively: landlords renting their land to tenants must ensure that their property does not become vacant, since they will continue to be liable for the tax even if their property does become vacant; and firms that own the land which is being used for productive purposes will continue to be liable for the tax, even if over-pricing results in a reduced volume of sales and lower profits (Hodgkinson, 2008, pp. 178–180).

Since a tax imposed on the value of land is borne exclusively by the owners of the valuable sites that constitute the base of the tax, such a tax can differentiate between those agents who are capable of bearing the burden of taxation and those who are not, and such a tax will not (in the long run) generate liabilities that cannot be borne by those on whom it is imposed. The reason for this is that – subject to the caveats highlighted earlier in this section – the yield of rent from any given site is usually almost entirely independent of the behaviour of the owners of this site, determined instead by the potential for production or consumption made possible by the natural and social advantages attached to it. Firms located at or near the margin of production which cannot bear a large tax burden will face either a small LVT liability or none at all, while firms located far from the margin of production, using land blessed with considerable social and natural advantages, will be taxed only in proportion to the value of these advantages – that is, only in proportion to the value that can be generated, using the same inputs of labour and capital, over and above the value than can be generated on marginal sites, the least productive sites in use. A tax which is proportional to rent is a tax which is proportional to locational variations in labour productivity rather than to the wage rate, and as such does not deter the employment of labour at the intensive and extensive margins of production (Hodgkinson, 2008, pp. 285–288). Similarly, those choosing to live on residential sites in marginal or near-marginal locations characterized by relatively low average wage rates will face only a small LVT liability or none at all, while those choosing to live in high-value locations far from the margin of production where average wage rates are relatively high will face a correspondingly higher LVT liability that reflects the relatively higher wage or salary that can be earned by people living in these locations.

Because a tax on the value of land is a tax not on the value of the output that is actually being produced on a given site at any given time, but rather on what the market estimates to be the value of the output that can potentially be produced on a given site, those on whom such a tax is imposed cannot reduce or eliminate their liability by reducing their production or consumption, by employing or providing less labour, or by engaging in fewer economic transactions. The rent for each site, and therefore the tax liability attached to ownership of each site, are the same, regardless of the volume of output actually produced, the amount of labour actually employed, or the number of transactions actually completed.[14] Moreover, because sites cannot be shifted to different locations or political territories, a tax on the value of land cannot be avoided by the landowner in the way in which a tax on capital or labour can be avoided by the suppliers of capital and labour, both of which can often be transferred (with varying degrees of difficulty) to and from different locations and political territories.

The rent yielded by valuable sites, then, is very different from the shortterm ‘quasi-rents’ that relate to the opportunity costs associated with the various factors of production. In the (sometimes not so) long run, the rents earned by scarce capital and highly skilled or well-trained labour will be competed away, as the high prices charged for these factors encourage increased investment in the formation of both human and non-human capital, thereby increasing their supply. Moreover, a tax on the value of these short-term rents will often be avoidable by those on whom the tax is imposed (the suppliers of the scarce capital and labour), since the supply of the factors in question will often be transferable to a different political territory that imposes a lower rate of tax. Furthermore, since the short-term rents earned by the suppliers of highly specialized capital and highly trained skills provide incentives for future suppliers of these factors to invest in their formation and development, a tax imposed on the value of these rents would be likely to discourage the making of such investments, thereby reducing the supply of the corresponding factors. After all, it is not as if highly productive capital – whether human or non-human – just simply exists: these particular forms of capital must be created by human exertion, just like all other forms. In short, the rental value of land is a taxable surplus; the value of the quasi-rents arising from scarce capital and labour are not.[15]

The general implication of the distinctiveness of land as a factor of production, then, is that while a tax on the rental value of land would generate no economic distortions or deadweight losses in marginal and near-marginal locations:

both taxes assessed on wages and those assessed on sales or output – practically all taxes in modern economies – act indiscriminately against the margin of production, for the simple reason that they disregard rent. Their impact, assumed to be on a ‘flat earth’ economy, in fact strikes against the profile of a real economy, which is not flat but composed of firms with differential rents. The inevitable result is that marginal sites are relatively much harder hit. Where there is rent it can cushion the impact of taxation. Firms with no rent have no recourse. Any tax whose incidence is not proportional to rent must have such an effect.

(ibid., p. 178)

Thus, unlike the taxation of land rental values, the broad-based taxation of production, employment, and consumption inhibits economic activity by making labour too expensive to employ at both the intensive and extensive margins of production, and by failing to penalize the inefficient utilization of sites in both marginal and non-marginal locations. The inefficient utilization of land and the under-employment of labour greatly reduce the collective productive potential of the citizens of societies that generate public revenue predominantly through the imposition of conventional broad-based taxation. Under-employed workers produce less than they would be capable of producing in the absence of conventional taxation; the long-term unemployed produce nothing. In other words, the diversion of the natural source of public revenue – the rental value of land – into private hands prevents those who are collectively responsible for the creation of this source of value from engaging in the economic activity which would increase both it and the size of their shares of it.[16]

In these ways – by restricting both the size of the total product to the creation of which labour contributes, and the size of the individual contributions of labour that together help to generate this product – the private appropriation of rent violates market freedom. Contrary to the assertions of J. B. Clark, then, the correspondence of wages and interest with the marginal products of labour and capital is fully compatible with the systematic violation of the right to private property. Such a right can be protected adequately only if as much as is feasible of the rental value of land is socialized, so that all citizens have the opportunity freely to apply their productive capacities to the resources offered by nature and society in order to create the private property with which to pursue their reasonable conceptions of the good. This is the case because land is a distinct factor of production, the utilization of which is essential for productive economic activity of any kind, but the total quantity of which is highly inelastic by comparison with the supply of labour and capital.

Are There, Nevertheless, Other Sources of Value Which Are Socially Created and Which Should Therefore Be Socialized?

As we saw in Chapter 2, many contemporary social liberals now argue that most, if not all, property is in some sense ‘socially created’. Proponents of what has been called the ‘knowledge inheritance theory of distributive justice’ argue that a large proportion of wealth in contemporary liberal societies is generated by the hugely productive cumulative knowledge and inherited technology handed down by previous generations, and is in this sense ‘socially created’ (Alperovitz and Daly, 2008, p. 153). If we assume that individuals deserve compensation commensurate with the economic value of their distinctive personal productive contributions, that people do not deserve what they do not create, and that ‘society’ does have a right to benefit from the wealth it does create, then, according to the proponents of the knowledge inheritance view, we should conclude that ‘a substantial portion of current wealth and income should be reallocated to all members of society equally or, at a minimum, to promote greater equality’ (ibid., p. 153). Such a ‘reallocation’ of current wealth and income would involve far more than could be achieved through the socialization of the rental value of land (ibid., pp. 109–125).

The geo-classical response to the knowledge inheritance theory can perhaps best be illustrated by contrasting it with the radical liberalism of Thomas Paine, who may be identified as one of its first proponents. Paine endorsed a form of land value taxation on the basis of considerations relating to what he saw as the unfairness and injustice of private landownership. In his pamphlet Agrarian Justice (1999 [1797]), Paine distinguished between two kinds of property: first, ‘natural property, or that which comes to us from the Creator of the universe’ – which, prior to the introduction of the system of landed property, had been ‘the common property of the human race’; and, second, ‘artificial or acquired property – the invention of men’ (ibid., p. iii). In respect of the former, Paine argued that ‘[e]very proprietor … of cultivated lands, owes to the community a ground-rent … for the land which he holds’ (ibid., p. 8). The ‘national fund’ – distributed as a kind of social dividend or inheritance for all citizens – which would be raised from these ground-rents could be regarded by each citizen ‘as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property’ (ibid., p. 10). In respect of the latter, by contrast, Paine suggested that a person’s ‘right share’ of such property was whatever this person had individually created (ibid., p. iii).

Since what Paine proposed was the payment of ‘ground-rents’ by landowners, rather than the elimination of private property or the regulation of commerce and trade, he could make a plausible claim to be offering a kind of ‘third way’ between, on the one side, the English Poor Law, which provided a minimal, means-tested, and highly stigmatizing ‘safety-net’ for those unable to survive by selling their own labour, and, on the other, the extreme socialist ideas being proposed by French radicals like François-Noël Babeuf. The apparent similarities between Paine’s proposal and the later Georgist theory are clear and obvious – but also misleading. Although Paine said that it was from ground-rents that his proposed fund was to be generated, a closer look at Agrarian Justice shows that this was not in fact the case. What he was actually endorsing was a kind of estate or inheritance tax – a tax on the value of personal property as much as on the unimproved value of land. Paine attempted to justify this aspect of his proposal by arguing that personal property is ‘the effect of society’, and that ‘it is as impossible for an individual to acquire personal property without the aid of society, as it is for him to make land originally’ (ibid., pp. 17–18). Since all accumulation of personal property ‘beyond what a man’s own hands produce, is derived to him by living in society’, it follows, Paine argued, that each person ‘owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came’ (ibid., p. 18).

From the geo-classical perspective, what Paine referred to as ‘the effect of society’ in making possible the creation and accumulation of personal property is itself reflected in the rental value of land. George reasoned that the most valuable sites were more economically productive than other sites – and therefore more valuable – precisely because they were located in areas with access to more of the socially created advantages generated by agglomeration and publicly funded services and infrastructure. It was partly on the basis of this reasoning that George argued that the rental value of land ‘expresses in exact and tangible form the right of the community in land held by an individual’, and therefore ‘the exact amount which the individual should pay to the community to satisfy the equal rights of all other members of the community’ (1920 [1879], Bk 7, Ch. 1, Sec. 27). If this rental value could be socialized, then, by making their payments of ‘ground-rent’ to the community, the owners of valuable land would be returning to society any value derived from living in society, at the same time as compensating their fellow citizens for the exclusive rights of private ownership that each landowner enjoyed. As George put it:

The tax upon land values falls upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of the value that is the creation of the community. It is the application of the common property to common uses.

(ibid., Bk 8, Ch. 3, Sec. 28)

This identification of the rental value of land with the value that may appropriately be socialized is consistent with the geo-classical theory of distribution, and with the idea of land as a distinctive factor of production. In contrast to land, capital is created by human labour (in conjunction with land), and can therefore justifiably be unconditionally privately owned. Since capital is created by human labour, any ‘social inheritance’ of value embodied in capital may be regarded as illusory, since the current owners of capital goods will have acquired their property, if not directly from the person responsible for its creation, then at least indirectly from this person via one or more intermediary private owners. Whether this acquisition was by trade or inheritance is irrelevant to the geo-classical libertarian,[17] since the idea of moral desert which is at the heart of the knowledge inheritance view plays no role in the geo-libertarian view. To socialize the value of such property would be to restrict market freedom rather than enhance it, and would therefore be unjust, from the geo-libertarian perspective. Seen from this perspective, the principle expressed by capitalism is not ‘to each according to what he and the instruments he owns produces’ (as Milton Friedman suggested (1962, p. 161)), but something more along the lines of ‘from each according to the value of the land to which she claims exclusive access; to each according to the value of what her labour and capital produces’.

However, although geo-classical thinkers have emphasized the incompatibility of economic freedom with the monopolization by private landowners of the rental value of land, it must also be emphasized that there are other forms of government-created monopoly that are incompatible with the full and effective protection of market freedom. The most significant of these is the monopolization by licensed banks and financial institutions of the right to create money by extending credit. As I argue more fully in Chapter 6, it is clear that the full and effective protection of market freedom cannot be secured within the context of a monetary system which looks anything like the systems which are typical of contemporary liberal societies. The need for institutional reform in the area of finance and money is perhaps almost as great as the need for fiscal reform. Other institutions characteristic of contemporary liberal societies, which might turn out to be incompatible with the protection of market freedom, are the laws and regulations that relate to corporate identity and governance, and those that relate to patents and copyright. For reasons which I have stated already in the Introduction, I do not provide a detailed discussion of these issues in this book.

How Much Revenue Can Be Raised by a Tax on the Rental Value of Land?

The early neo-classical critics of Henry George argued that a tax on the rental value of land would fail to generate sufficient revenue to cover what was at that time the full cost of government, and it is generally now assumed that the revenue generated by such a tax would be insufficient to allow for anything like the complete elimination of existing taxation (Blaug, 2000, pp. 278–279). While the Georgist claim that a ‘single tax’ on the rental value of land would be sufficient to cover the full cost of government might indeed seem somewhat unrealistic, particularly in the context of twenty-first-century liberal societies with vast government expenditures, compared with those of the late nineteenth century, it is also the case that the revenue-generating potential of LVT has been radically underestimated by critics of the idea (Gaffney, 2009). One reason for this is the failure to take adequate account of the large residential rental values, which are either imputed by owner-occupiers or captured by mortgage providers (in the guise of mortgage interest payments made by those in the process of acquiring a freehold title), and the large commercial rental values which are imputed by firms, which, while they appear to be making significant ‘profits’ or ‘capital gains’ from their productive activities, are in fact able to be more competitive than firms based on rented sites or in marginal locations only by imputing large amounts of rent from the valuable commercial sites that they own (ibid., pp. 329–333).

Perhaps most importantly, the potential role of LVT in generating a significant amount of public revenue has been overlooked because of the failure fully to appreciate the extent to which economic activity in contemporary liberal societies is distorted and suppressed by the private appropriation of rent. As we have seen, the failure to socialize rent generates scarcity rent and thereby reduces the general level of wages, while the conventional taxation that must be imposed, if rent is not socialized, generates deadweight losses and unemployment by penalizing those who engage in productive economic activity, while failing to penalize those who withhold their land from productive utilization. The subsequent need for the provision and administration of welfare benefits and services requires the generation of additional public revenue, and therefore the imposition of additional conventional taxation, which results in lower wages, higher living costs, and higher levels of unemployment, all of this generating still higher welfare costs. As well as reducing wages and raising the cost of government, the private appropriation of rent reduces rent itself – and therefore the revenue-generating potential of land value taxation – by suppressing productive economic activity (ibid., pp. 370–381; Gaffney, 2013, pp. 102–111).

Despite the enormous increases in the productivity of labour resulting from ever more agglomeration and technological innovation, a substantial majority of the citizens of contemporary liberal societies remain dependent for their livelihoods on securing a full-time job for at least one household member, with both parents often needing to work full-time or nearly full time in order to ‘make ends meet’, that is, in order to cover the costs of basic housing, energy, commuting, and nutritional needs. Often the income from full-time jobs – which are in any case becoming increasingly insecure and precarious – is not enough to cover the basic costs of living, and people must rely on the financial support of a ‘negative income tax’ or some other tax credit or social welfare scheme to provide them with a minimally sufficient income. Those who are not overworked are often underemployed or more or less permanently unemployed, impoverished by being prevented from fully expressing themselves productively and creatively, as well as in the more familiar sense of being financially insecure and dependent on welfare support.

Of course, this social poverty is juxtaposed against immense material prosperity, not just for the richest 1 per cent but also for the majority of less advantaged citizens, who enjoy a choice of consumer goods, and a general standard of living, that could not have been imaginable in the late nineteenth century. But this undoubted material prosperity comes at such a high social cost that it is reasonable to suggest that the much-vaunted wealth-creating productivity and dynamism of so-called ‘capitalism’ are to a certain extent an illusion: contrary to the expectations of the optimists of earlier times (Keynes, 1930; Mill, 1909 [1848], Bk 4, Ch. 6), immense technological and other economic advances have failed to free people from the toil and burden of hard work combined with social deprivation. In much of the developed world, the fruit of more than half a century of progress since the Second World War is a new era of seemingly permanent austerity.

The geo-classical economic explanation for this extraordinary situation is that since the natural source of public revenue in these societies – the socially created rental value of land – is privately appropriated rather than socialized, the citizens of such societies are systematically exploited by those who collect the majority of the collectively created surplus, and the economies of these societies are grossly inefficient, over-burdened by high rates of conventional taxation. With the burden of taxation shifted on to rent and away from productive economic activity, the subsequent rise in the general level of wages would significantly reduce the need for social welfare expenditure, and therefore the cost of government. Conventional taxation could then be further reduced, and the productive economy made correspondingly more efficient and productive. At the same time, the rental value of land – and therefore the revenue-generating potential of LVT – would rise as a result of the material progress generated by more productive economic activity, and conventional taxation could be reduced still further. In these circumstances, the complete elimination of conventional taxation would perhaps not seem quite so unrealistic.

From Geo-Libertarianism to Geo-Liberalism

Set within the theoretical framework of a left-libertarian conception of justice, the geo-classical theory of distribution supports the absolute prioritization of an unorthodox conception of market freedom, the central feature of which is the socialization of the rental value of land. When the legal protection of the rights of private ownership that apply in respect of non-privately created property is conditional on the payment of rent by private landowners to the community, the rights of private ownership that apply in respect of privately created property can be protected effectively. In this way, all citizens can enjoy the economic freedom to create and otherwise obtain private property in the pursuit of their conceptions of the good, and the principle of self-ownership can be satisfied.

But how important is real market freedom from a broader liberal perspective? If the effective protection of (real) market freedom can be shown to be essential to the promotion of what I have referred to in previous chapters as ‘social freedom’ — the substantive opportunity for all citizens to pursue a reasonable conception of the good, regardless of the value of the privately created property each may or may not be able to obtain – then the geo-classical theory of distribution might plausibly be set within the theoretical framework of a liberal conception of justice that identifies the demands of political and social justice with the fundamental interests of citizens in the exercise of free moral agency. The geo-classical theory of distribution might then support the somewhat less than absolute prioritization of market freedom as a purely instrumental condition for free and equal citizenship and the realization of political and social justice. In Chapter 4, I outline a plausible liberal conception of political justice in order further to develop the argument that market freedom is indeed of considerable instrumental importance for the amelioration of socio-economic inequality and the maximization of citizens’ substantive opportunities to pursue their reasonable conceptions of the good.

Notes

1

The radical implications of Ricardo’s theory of rent were also recognized by many of the mid to late nineteenth-century and early twentieth-century economists who contributed to the development of the tradition of neo-classical economics, including Henrich Gossen, Alfred Marshall, Friedrich Von Wieser, Leon Walras, and Philip Wicksteed, all of whom expressed some kind of support for the nationalization of land (Blaug, 2000, pp. 271–272; Foldvary, 2008). As we saw in Chapter 2, J. S. Mill followed his father in endorsing the taxation of future increases in rent.

3

In the context of a discussion of ‘Locke’s theory of acquisition’, Nozick asserted, in answer to the question ‘Why should one’s entitlement extend to the whole object rather than just to the added value one’s labour has produced?’, that ‘No workable or coherent value-added property scheme has yet been devised, and any such scheme presumably would fall to objections (similar to those) that fell the theory of Henry George’, without specifying what these objections were (1974, p. 175, emphasis in original).

4

See ‘Growth, Opportunity and Perfectionism’ in Chapter 4.

5

It is worth noting, in addition, that the capital-saving tendency of many technical and other improvements helps to explain why interest has not swallowed up more of the gains from material progress than wages (Blaug, 1985, pp. 478–481).

8

It has been suggested that the socialization of rent would not necessarily entirely prevent all speculation in land values, since the existence of sufficient demand from developers to protect themselves against the risk of rising rents might generate ‘an insurance market in future land rent’ (Tideman, 1994, p. 14), or a market in ‘rent-collection futures contracts’ and ‘rent-collection options’ (Foldvary, 1998, pp. 632–634), in order to shift this risk to speculators.

9

Fred Foldvary has suggested that just as patents can provide incentives for inventors to create new products, a proper implementation of land value taxation should let large developers retain profits that derive from increases in land value generated by their development, but only for a limited time.

[An entrepreneur] who discovers or creates a new use for a site is like an inventor of a new product, and could be granted a land use patent for a number of years. After that, the site rental gradually becomes land rent. The patent duration should be long enough for typical entrepreneurs to be incentivized to innovate.

(Foldvary, 2014, p. 457)

10

While the geo-classical theory of distribution is not incompatible with the marginal revenue productivity theory of distribution, it is not the case that the validity of the former necessarily depends upon the validity of the latter. To the extent that the wages, interest, or profits received by factors do not reflect the value of their marginal products, the private appropriation of rent might provide a significant part of the explanation for this, as I suggest in Chapter 6. What geo-classical economists have argued is that it is not the case that citizens are economically free to the extent that payments to factors do indeed reflect their productive contributions: as is explained in more detail below, the full and effective protection of the right to private property requires more than this.

11

Radical right-libertarians, of course, will argue that since there is no such thing as ‘necessary public revenue’ the private appropriation of the rental value of land does not generate any need for the imposition of taxation on productive economic activity, and therefore cannot reasonably be criticized on this basis. Since I have already explained why the socialization of rent is essential to the protection of market freedom, I need not address this question at this stage. I do address it, however, in Chapter 6, when I discuss the role of publicly funded goods and services in enhancing the social freedom of the citizens of a just liberal society. The purpose of the present discussion is to address the claims of neo-classical economists that taxes other than one imposed on the rental value of land are likely to be more effective in socializing economic rent and, more generally, in generating public revenue efficiently.

13

So-called ‘land’ that is created by, for example, draining marshland or extending the sea shore, is in fact capital, its creation by human labour entirely dependent on the prior existence of the marshland or sea bed, and the three-dimensional space within which these material aspects are located (Foldvary, 2014, pp. 452–53). A high rental value is already latent in these naturally existing factors, prior to the creation of the capital that turns them into a usable resource. This latent rental value is then ‘unlocked’ by the creation of the capital, in the same way that the latent value of land outside a residential or commercial development zone is unlocked when this land is brought within such a zone.

14

One might, of course, regard this as a reason for rejecting LVT rather than endorsing it, given the likely effect of this feature of LVT in narrowing the range of uses to which private landowners can choose to put their valuable sites. However, I argue in Chapter 6 that this concern is illusory: overall, citizens would enjoy far greater opportunities to put land to a much wider range of uses with rent socialized than they do with rent largely privately appropriated. The present discussion is concerned with the purely economic case for imposing taxation as far as possible on the value of land rather than on productive economic activity.

15

Gaffney has also pointed out, in the context of a discussion of the idea that the rent of land – ‘a payment without the function of eliciting supply’ – resembles ‘the income of theatrical and athletic stars who allegedly enjoy their work, are good for little else, and would work as much for less money’, that the alleged rental component of such income is in fact indefinable.

[This rental component] is supposed to be the excess of … star income over … opportunity cost. Expositors describe that best alternative as remote and ill-rewarded: BB as a scrubwoman, Roger Maris as a teacher. Thus they make most of the star income a rent. But the alternatives are arbitrary and the rent is rubber. There is a whole range of closer alternatives, and what is rent and what is not depends entirely on the one specified, until we have Roger playing for another team, and Brigitte for another audience, near their present fees, and their rent vanishes into earned income.

(1962, p. 146)

16

From the geo-classical perspective, the economic instability that is the inevitable result of the private appropriation of the rental value of land is just as important as the negative economic impact of conventional taxation. Total output is significantly reduced by the unemployment and destruction of capital that follow the bursting of the land-price bubbles generated by speculation in land values. However, for the reasons already given earlier in this section, I shall not provide a detailed discussion of the geo-classical theory of the economic cycle.

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4 Justice as Fairness and the Priority of Substantive Opportunity

Introduction

In this chapter, I outline a plausible liberal political conception of justice which will provide the basis for the further elaboration of a distinctively liberal theoretical framework within which the geo-classical theory of distribution can be situated. The conception of justice outlined in this chapter is but one among many plausible such conceptions, and is intended merely to serve as an example to illustrate the role that the geo-classical theory of distribution might play within a liberal theoretical framework. Whether other plausible conceptions, which might be more or less prioritarian, sufficientarian, egalitarian, republican, or social relational in character, might serve this purpose just as well, or possibly even better, is not a question I shall address. I shall, however, assume that many of the arguments which I present in Chapters 5 and 6 would apply equally well in respect of a wide range of other such conceptions.

In outlining this plausible liberal political conception of justice, I follow John Rawls (1999a [1971]; 2001) and John Tomasi (2012a) in seeking to construct a conception that expresses principles of justice which cannot reasonably be rejected by any citizen, and which are therefore publicly justifiable. Like both Rawls and Tomasi, I shall assume that the principles that are justifiable in this way are those that establish the conditions of free and equal citizenship by protecting and promoting citizens’ fundamental interests in the development and exercise of their powers of moral personality, which are identified in terms of Rawls’s ideas of rationality and reasonableness discussed in Chapter 2. The detailed specification of the principles of justice that is implied by this conception of fundamental interests will provide the basis for the further development of the argument that real market freedom is instrumentally highly important in satisfying the demands of democratic legitimacy and free and equal citizenship.

Although the account of the content of citizens’ fundamental interests provided by Tomasi differs in no essential respects from the account elaborated in more detail by Rawls,[1] Tomasi’s interpretation of the substantive implications of these interests does differ in several important respects from the view developed by Rawls. One central difference between the Rawlsian and Tomasian conceptions of justice concerns the precise specification of the basic rights and liberties that are considered to be essential institutional conditions for the protection of citizens’ fundamental interests, with Tomasi identifying as essential conditions a range of ‘private economic liberties’, including rights of private ownership and freedom of contract, to which Rawls assigns much less importance (Tomasi, 2012a, pp. 68–84). For this reason the idea of the priority of liberty, a central feature of both conceptions of justice, is interpreted very differently by Rawls and Tomasi: in Tomasi’s view this central feature of justice as fairness rules out both of the socio-economic models (property-owning democracy and liberal socialism) that Rawls endorses.

I shall argue that although Tomasi is right to identify ‘private economic liberties’ as essential institutional conditions for the protection of citizens’ fundamental interests, he is wrong both in his analysis of the reasons for the importance of this point, and in his interpretation of its substantive implications. As we will see, the development and exercise by citizens of their capacities for rationality and reasonableness depend upon the enjoyment, by all citizens, of adequate substantive opportunities or capabilities to pursue a reasonable conception of the good. The individual economic rights and liberties which are essential institutional conditions for the protection of citizens’ fundamental interests must therefore be understood, contra Tomasi, not as formal rights and liberties, which secure market freedom, but rather as substantive rights and liberties, which secure substantive opportunity or capability for all citizens to pursue a reasonable conception of the good, and thereby to exercise free moral agency. The protection of citizens’ fundamental interests requires that the formal rights and liberties of market freedom be protected only to the extent that this is instrumentally necessary to maximize the substantive opportunities or capabilities – the social freedom – of the least advantaged members of society. This conception of justice demands that market freedom be restricted if and to the extent that this would enhance the substantive opportunities of the least advantaged members of society.

The development of this line of argument requires a radical but well-founded rethink of the idea of the priority of liberty, which is the main purpose of this chapter. Both Rawls and Tomasi divide their conceptions of justice into two distinct parts, one part concerning the specification and protection of the rights and liberties of equal citizenship, the other concerning the regulation of the distribution of opportunities and socio-economic advantages. Both, therefore, identify the priority of liberty with the prioritization of the first part over the second, although they specify the first part – the rights and liberties of equal citizenship – very differently. This way of theorizing the priority of liberty is problematic when viewed in the context of the fundamental interests-based justification of this feature to which both Rawls and Tomasi appeal. As we will see, the problem for Rawls is that many of the opportunities whose distribution is regulated by the second principle of justice are in fact essential to the protection of citizens’ fundamental interests in the exercise of rational agency, and should not therefore be separated from and subordinated to the ‘rights and liberties of equal citizenship’. To separate rights of access to opportunities to pursue a conception of the good from other supposedly more ‘basic’ civil and political rights and liberties is to fail to recognize the significance of the former, and to fail to provide adequate protection against foreseeable but unjustifiable restrictions of these rights.

The problem for Tomasi, on the other hand, is that once we assign priority to citizens’ fundamental interests in rational agency, we cannot then appeal to formal ‘private economic liberties’ in order to rule out interventionist redistributive and regulatory mechanisms which may reasonably be expected to improve the opportunities and prospects of the least advantaged members of society. In other words, once we, like Tomasi, identify the protection of citizens’ fundamental interests in the exercise of rational agency as essential to democratic legitimacy and free and equal citizenship, restrictions of the formal rights and liberties of market freedom can be ruled out only on the basis that such restrictions may not in fact reasonably be expected to improve the opportunities of the least advantaged members of society to pursue their (reasonable) conceptions of the good. Tomasi’s formal ‘private economic liberties’ cannot be assigned priority over substantive rights of access to opportunities to pursue a conception of the good, and Rawls’s preferred institutional models, the property-owning democracy and the liberal socialist regime, therefore cannot be ruled out on the basis of such prioritization.

In view of the ‘fundamental interests’ justification for the priority of liberty, I shall argue, contra Rawls and Tomasi, that this important feature of the liberal theory of justice must be interpreted broadly to encompass the prioritization of ‘liberty’ in the widest sense – liberty as the social freedom that consists of the enjoyment of the widest possible range of substantive opportunities to pursue a reasonable conception of the good. The priority of liberty, thus conceived, might therefore more appropriately be referred to as ‘the priority of substantive opportunity’: the priority assigned to maximizing the substantive opportunities of the least advantaged members of society to pursue their conceptions of the good, and thereby to exercise their powers of moral personality. There are, of course, many less important objectives which the governments of liberal societies might (and do) aim to pursue, and one of the principal dangers for the citizens of such societies is that the pursuit of these less fundamental, ‘lower-order’ objectives might prevent the maximization of their substantive opportunities if this, more fundamental, objective is not assigned priority. In the second half of this chapter, I consider how one such lower-order objective might threaten the fundamental interests of citizens if these interests are not adequately protected by the publicly accepted conception of justice. I begin, however, by considering the way in which Rawls’s and other social liberal conceptions of justice have been criticized by thinkers situated within the recently emerging school of ‘neo-classical’ liberalism.

Neo-Classical Liberalism, Economic Exceptionalism, and the Priority of Liberty

Neo-Classical Liberalism and the Idea of ‘Thick’ Economic Liberty

‘Neo-classical liberalism’ is the term suggested by Jason Brennan and John Tomasi as the label for an approach which seeks to combine ‘a robust commitment to social justice—a commitment as robust as that of high liberals—with a commitment to a more extensive set of basic liberties than that advocated by high liberals’ (2012, p. 115). Traditional classical liberalism, as neo-classical liberals see it, correctly attaches as much importance to ‘individual economic liberties’ as to other civil and political rights and liberties, but mistakenly undervalues the idea of social justice and fails to provide a principled and coherent defence of even the most minimal welfare institutions, such as tax-funded education provision, or a social ‘safety-net’ for the poorest in society (ibid., p. 119). Traditional social liberalism, by contrast, correctly attaches a high level of importance to the idea of social justice and offers principled and at least partially coherent accounts of the moral basis of welfare institutions, but mistakenly attaches much less importance to individual economic liberties than it attaches to civil and political rights and liberties, thus allowing unacceptable restrictions of these economic liberties (ibid., pp. 118–119). Neo-classical liberals thus attempt to achieve a higher degree of theoretical consistency and coherence, and to offer a more morally ambitious form of liberalism than the traditional classical and social liberal alternatives, by appealing to a conception of free moral agency in order to provide grounds for both the strong protection of individual economic liberties and the enthusiastic endorsement of the social justice requirement that basic socio-economic institutions benefit the least advantaged members of society.

Tomasi (2012a, 2012b) has developed a neo-classical liberal conception of justice, which he calls ‘free market fairness’, as an alternative to Rawls’s highly influential conception of ‘justice as fairness’. Like Rawls, Tomasi considers political institutions to be justifiable and legitimate only if they are morally acceptable to all citizens subject to them – that is, only if they are designed ‘so that the benefits they help produce are enjoyed by all citizens, including the least fortunate’ (2012a, p. xiv). And like Rawls, Tomasi identifies certain interests of citizens as being more important or fundamental, and therefore deserving of stronger protection, than others. As we saw in Chapter 2, Rawls identified the prioritization of the traditional civil and political rights and liberties as essential for the protection of citizens’ ‘highest-order interests’ in the development and exercise of their two moral powers. This idea of highest-order interests is, with some minor modifications, endorsed by Tomasi, as is the idea that the basic rights and liberties that are essential to the protection of these interests have a special status within any liberal theoretical system, their protection being therefore prior to any other social aim (ibid., p. 76).

But Tomasi objects strongly to what he calls Rawls’s ‘economic exceptionalism’ – his identification of only a narrow range of rights to personal property, rather than the full range of individual economic rights and liberties, as essential conditions for the protection of citizens’ highest-order interests (ibid., pp. 68–84). Tomasi, by contrast, emphasizes the importance of ‘the economic rights of capitalism – the right [for example] to start a business, personally negotiate the terms of one’s employment, or decide how to spend (or save) the income one earns’ (ibid., p. xi). One of the most important features of free market fairness, then, is its specification of a broad range of thickly construed individual or private economic liberties as essential conditions for the protection of citizens’ interests in the development and exercise of their moral powers – liberties of working, and liberties of owning (ibid., pp. 22–23). The stringent protection of such rights and liberties, Tomasi argues, enables ordinary people to ‘become who they are, and express who they hope to be, by the personal choices they make regarding work, saving, and spending’, and should therefore be valued as highly as the protection of civil and political rights and liberties which are also essential to free agency (ibid., p. xi). And what this means is that these economic rights and liberties should be secured by the first principle of justice and prioritized over the rights and benefits secured by the second principle.

There is a sense in which Tomasi’s objection to Rawls’s economic exceptionalism is well founded, and he is right to lament the absence of any serious attempt by Rawls to defend his exclusion of individual economic rights and liberties from the first principle of justice. In his discussion of the ‘fundamental interests’ justification of the priority of liberty, Rawls does not pay nearly enough attention to the question whether the essential conditions for the protection of these interests might include certain economic rights and liberties in addition to the civil and political rights and liberties covered by his first principle of justice. Rawls draws a sharp distinction between the fundamental or ‘highest-order’ interest in exercising the capacity for rationality, which he associates with the process of forming and revising a conception of the good, and the ‘lower-order’ interest in actually advancing or practically pursuing a conception of the good once it has been formed (1999b, pp. 365–367). The priority of the first principle of justice over the second is then justified by the importance attached to the former set of interests compared with that attached to the latter (ibid., pp. 365–367; Rawls, 1996, pp. 74, 106). As Robert Taylor puts it, the priority of the basic liberties over the other primary goods ‘can be justified by a hierarchy of interests: our highest-order interest in choosing our ends in freedom takes lexical priority … over our interest in advancing those ends’ (2003, p. 255).

I believe that it is an error to assume that such a sharp distinction can be drawn between the interest in forming and revising a conception of the good and the interest in actually advancing or pursuing such a conception. When we consider Rawls’s account of what a ‘conception of the good’ actually consists of, we can see that the idea of rationality on which this sharp distinction rests is surely unnecessarily and implausibly narrow. A conception of the good is ‘a conception of what we regard as a worthwhile human life’, and normally includes ‘a determinate scheme of final ends and aims’, as well as ‘desires that certain persons and associations, as objects of attachments and loyalties, should flourish’ (Rawls, 1996, p. 302). Such a conception also incorporates ‘a view of our relation to the world – religious, philosophical or moral’ by reference to which the determinate scheme of final ends and attachments is understood (ibid., p. 302). If this determinate scheme of final ends and aims is indeed understood by reference to a religious, philosophical, or moral view of some kind, then it seems reasonable to suppose that the person holding the conception of the good in question will attach just as much importance to the advancement of these practical ends and aims as she will attach to the religious, moral, or philosophical view by reference to which these ends and aims are understood. Why would anyone attach more importance to one than the other? And if a conception of the good incorporates not only strong religious, philosophical, or moral values, but also a commitment to certain kinds of more concrete projects and associations, which are necessary for the practical realization of the religious, philosophical, or moral values, then these practical projects and associations can hardly be said to represent ‘lower-order’ interests.

Indeed, the interest in advancing or pursuing a conception of the good would appear to be practically inseparable from the interest in forming and revising a conception of the good, since the ongoing process of forming and revising such a conception cannot take place in the absence of essential information obtained through practical attempts actually to realize the elements of the relevant conception of the good – in other words, through attempts to advance the conception of the good (Kerr, 2012). It seems evident, then, that the advancement of a conception of the good – the pursuit of the ‘determinate scheme of final ends and aims’ incorporated in the conception – must be as important a part of the process of the exercise of rationality as is the formation and revision of a conception of the good. Consider, for example, some of the ‘moral views of our relation to the world’ typically held by the citizens of liberal societies, in terms of which various practical ends and aims are motivated and understood. Many people regard themselves as being under some sort of moral obligation to do their best to ‘pay their way’ in life, to work in order to earn their own living, to ‘contribute to society’ in some way, and not to ‘sponge’ or free-ride on the efforts of others. Many feel a strong responsibility to work hard to provide for all the needs and enhance the lives and prospects of their children, partners, and other loved ones. Others make moral commitments to do all they can to protect or enhance the natural environment, to support charitable and other non-governmental organizations, to improve the prospects of vulnerable groups in their society (or in other societies), and so on.

In affirming and acting in accordance with these moral values and commitments, people structure and organize their lives in order to enable them to meet their perceived obligations more effectively. For example, people make efforts to train and educate themselves, to search for appropriate jobs or business opportunities, to set up community groups and associations, to shop and consume responsibly, to provide stable, secure, and loving environments, in which they and their families can live, and so on. And in making these choices and pursuing these practical ends and aims, people constantly learn more about themselves and about the way in which they live, and are often led to revise or reject aspects of their moral values and commitments, or to endorse new ones. It is therefore a mistake to think that the parties in Rawls’s original position would be moved to assign the interest in the advancement of a conception of the good a subordinate place in the terms of social cooperation, according to which the basic political, social, and economic institutions of society are to be structured and organized (ibid.). The individual economic rights and liberties, which protect the interest in advancing a conception of the good, are no less essential to the protection of citizens’ fundamental interests in the exercise of their capacities for rationality and reasonableness than the civil and political rights and liberties covered by Rawls’s first principle of justice, and there would, therefore, seem to be some force to Tomasi’s objection to Rawls’s economic exceptionalism (Kerr, 2013).

But if there is a sense in which Tomasi’s critique of this aspect of Rawls’s conception of justice is well founded, there are a number of crucial mistakes made by Tomasi in developing his own free market fairness conception of justice. One mistake is his failure to differentiate between the rights of private ownership that apply in respect of privately created property and those that apply in respect of non-privately created property, and his subsequent failure to appreciate the significance of rent and its socialization. In other words, the conception of market freedom which is implicit in Tomasi’s idea of ‘private economic liberty’ is decidedly orthodox, and its prioritization would not require the socialization of rent, but rather just the sort of classical liberal ‘laissez-faire’ institutions which I seek to challenge in this book. This line of argument will be developed in Chapters 5 and 6. What I would like to focus on at this stage is Tomasi’s failure to recognize that the ‘individual economic liberties’ which are essential conditions for the protection of citizens’ fundamental interests in exercising their powers of free moral agency are not in any case identifiable with the idea of a purely formal right to private property, or with what I refer to as market freedom. Tomasi’s ‘individual economic rights liberties’ must surely be identifiable, not with the idea of market freedom or the formal rights of private ownership and freedom of contract which he endorses, but rather with the idea of social freedom – rights to substantive opportunities and capabilities to pursue the practical ends and aims incorporated in a conception of the good (ibid.).

Individual Economic Liberty: Formal or Substantive?

If the protection of citizens’ fundamental interests in free moral agency is the basis for the priority of liberty, and if the protection of the substantive freedom to pursue practical ends and aims is an essential aspect of these fundamental interests, then the priority of liberty must require, rather than rule out, the implementation of policies designed to secure these substantive freedoms. The priority of liberty therefore cannot rule out, as a matter of moral principle, the social democratic interventionist institutions endorsed by Rawls and other social liberals. It is only on practical, empirical grounds that these social democratic institutions can be ruled out by the priority of liberty, and therefore only on these same grounds that market democratic institutions can be endorsed by this feature of justice as fairness. In other words, the protection of the formal rights of private ownership and freedom of contract constitutive of market freedom cannot be prioritized over the socio-economic rights that secure substantive opportunities for all members of society, should it be the case that such rights do indeed secure these substantive opportunities.

For these reasons, free market fairness does not reconcile the values of individual economic liberty and capitalism with those of social justice and democracy as effectively as Tomasi suggests, as we can see when we consider how he understands the idea of a ‘fair share’ of income and wealth. Since free market fairness assigns priority to ‘private economic liberty’, the rights to fair shares of income and wealth for all citizens secured by the second principle of justice are in fact rights to ‘the largest possible bundle of real wealth that might be procured for the least fortunate, consistent with respecting the rights of other citizens’ (Tomasi, 2012b, p. 33, emphasis added). What this means, he argues, is that the special protection of ‘private economic liberty’ places strict limits on any attempt, through the use of state power and interference in the free market, to increase the size of the bundle of wealth over which the least advantaged members of society have control – the protection of basic rights and liberties is ‘prior to any other social aim – whether that aim be economic prosperity, or even, notably, the lessening of social inequality’ (Tomasi, 2012a, p. 76). In other words, free market fairness requires the maximization of the amount of wealth controlled by the least advantaged members of society only up to the point at which any distributive measures which might further increase this amount (say, a minimum wage policy, or a tax credit or ‘negative income tax’ scheme) begin to violate the private economic liberties – the market freedom – of the more advantaged. A ‘fair share’ of income and wealth is the largest share to which a citizen can have access without violating the market freedom of any other citizen.

However, it is by no means self-evident that this idea of what constitutes a ‘fair share’ of income and wealth is consistent with what Tomasi calls the ‘distributive adequacy condition’ – the condition that any adequate liberal conception of justice must incorporate ‘the claim that the institutions being endorsed are deemed likely to bring about some desired distribution of material and social goods’ (ibid., p. 126). The associated idea of the ‘range of self-authorship’ then specifies the particular kind of distribution that is indeed desirable: only those distributions which provide citizens with the capacities to be responsible self-authors are desirable (ibid., pp. 94–95). According to Tomasi, this condition of distributive adequacy should be affirmed because it is an expression of a commitment to reciprocity, and of respect for citizens conceived as free and equal self-governing agents, with citizens of every class shown the same moral respect (ibid., p. 141). An ‘adequate distribution’ of income and wealth, therefore, is one that ensures that all citizens, including the least advantaged, are capable of being responsible ‘self-authors’, able independently to govern their own lives and pursue their own plans (ibid., pp. 93–99). The distributional adequacy condition, interpreted in line with the idea of the range of self-authorship, clearly requires the implementation of whatever measures will most effectively establish the conditions within which citizens can develop and exercise their powers of moral agency, and the ‘protection of economic liberty’ cannot conflict with and curtail the implementation of these measures, whatever they might be. Indeed, Tomasi himself takes the view that all citizens will be capable of being responsible self-authors, only if some are assisted through the provision of at least a minimal set of welfare institutions – that is, through the implementation of interventionist redistributive or regulatory mechanisms that restrict market freedom (ibid., pp. 94–95).

One might wonder what sort of guidance free market fairness would provide if the protection of citizens’ fundamental interests in the exercise of free moral agency turned out to require the provision of more generous and interventionist welfare institutions than the minimal ‘safety-net’ institutions that Tomasi endorses. If a more generous and interventionist welfare system is thought to be required in order to satisfy the distributive adequacy condition, then free market fairness must endorse the implementation of the necessary measures. But if the prioritization of private economic liberty would prevent the implementation of these interventionist measures, then there would appear to be a serious conflict between the prioritization of these liberties and the distributive adequacy condition.[2] Of course, Tomasi might argue that there would be no such conflict, since, fortuitously, the distributive adequacy condition and the demands of social justice will be satisfied by just the minimal safety-net welfare institutions and regulatory measures that he endorses, and will not require any more interventionist institutions. But even if Tomasi is right about this (I suggest in Chapter 6 that there are good reasons to think that he is not), this does not make his attempt at reconciliation any more successful, since it is not clear how any sort of interventionist welfare institutions or restrictions of contractual agreements, however minimal, could overcome the obstacle of the prioritization of economic liberty.

Tomasi is careful to point out that, contrary to the position adopted by radical libertarians, the private economic liberties protected by the priority of the first principle of justice are not absolute rights of private ownership which cannot be balanced against any other considerations (ibid., pp. 90–93). But it is a feature of the prioritization of these rights that they may only be balanced against other basic rights and liberties protected by the priority of liberty, and not against the rights and benefits secured by the second principle of justice: the first principle of justice is assigned absolute priority over the second (ibid., p. 76). Since the aim of maximizing the amount of income and wealth that goes to the least advantaged members of society is an aspect of the second principle of justice, it is subordinate to the first principle, which assigns priority to the private economic liberties. This priority would appear therefore to limit the income and wealth that can be secured for the least advantaged members of society to whatever these citizens can gain by exercising their market freedom, and would appear to rule out any interventionist measures designed to generate real substantive opportunity for less advantaged citizens. Of course, libertarians and radical classical liberals might argue that it is not a problem that the absolute prioritization of private economic liberty over social justice rules out the implementation of interventionist measures designed to secure social justice, since, fortuitously, the protection of formal rights of private ownership and freedom of contract will, in any case, maximize the amount of income and wealth that goes to the least advantaged citizens. However, even if this line of argument were at all plausible, any reference by the proponents of such an approach to an ideal of social justice would be entirely superfluous, since in this case the maximization of the share of income and wealth going to the least advantaged members of society would be merely a happy coincidence, a contingency which does not follow logically from any considerations of value or principle.

Contra Tomasi, the socio-economic institutions that satisfy the demands of social justice are not those that assign absolute priority to the protection of market freedom, but rather those that generate the substantive opportunities for all citizens to pursue their conceptions of the good, and thereby to exercise their capacities for free moral agency. The rights of private ownership that are constitutive of market freedom may therefore justifiably be restricted to the extent that this is necessary in order to generate these substantive opportunities. For this reason, any reconciliation between the private economic rights and liberties of capitalism – market freedom – and the substantive rights of access to material resources of social justice – social freedom – can only be a partial reconciliation which rests on any instrumental importance which the protection of the former can be shown to have for the realization of the latter. From the perspective of a liberal theory of justice, which identifies democratic legitimacy in terms of the fundamental interests of all citizens in exercising their capacities for rationality and reasonableness, the rights and liberties of market freedom are valuable only to the extent that their protection is instrumentally necessary to secure the social freedom of the least advantaged members of society – that is, the maximization of the substantive opportunities of the least advantaged citizens to pursue their reasonable conceptions of the good. And what I shall argue in Chapter 6 is that real market freedom – the protection of which requires the socialization of rent – is highly likely to be much more instrumentally valuable than faux market freedom.

For those who wish or feel compelled to endorse both sets of ideals as intrinsically valuable – those of capitalism and market freedom and those of substantive opportunity and social justice – a way of balancing one set of ideals against the other must be found. This cannot be done by assigning absolute priority to one over the other, which is what Tomasi’s account of the priority of liberty in fact does. When such values and ideals collide, tough choices must be made. Fortunately, this book is not concerned with these kinds of problems, but with the more practical question of the extent to which the protection of market freedom – real market freedom – is a requirement of, rather than an obstruction to, the realization of social justice. In order to address this question we need to consider what it means to enhance the substantive opportunities and capabilities of the least advantaged members of society, and in this way highlight another serious error made by Tomasi in developing his free market fairness conception of justice.

Growth, Opportunity, and Perfectionism

The Tyranny of Growth

In addressing the question of what it means to improve the prospects and positions of the least advantaged members of society, Tomasi enthusiastically endorses the objective of maximizing economic growth and material prosperity. In his view, since increases in prosperity necessarily generate increases in the value of liberty, free market fairness therefore demands that we ‘adopt institutions designed to maximize the bundle of wealth personally controlled by the lowest-paid workers’ (insofar as this is compatible with the protection of market freedom and the formal individual economic rights of private ownership and freedom of contract) (Tomasi, 2012b, pp. 32–33, emphasis in original). Tomasi then argues that since ‘a faster-growing economy would make more financial benefits available to the poor’, and given that we best respect the poor by maximizing their holdings of wealth, it therefore follows that we should endorse an ‘enthusiastically capitalistic’ free market institutional arrangement which will provide the conditions for the faster economic growth that is needed (ibid., pp. 31–33). Thus, the institutions most fit to deliver free market fairness are not social democratic ones, but rather those that create ‘an environment in which creative commercial capacities of individuals are unleashed to the benefit of all, without artificial limit or cap’ (ibid., p. 33). The most appropriate institutional scheme for a society of free and equal citizens is therefore a ‘market democratic’ system – either ‘democratic limited government’ or the ultra-minimal ‘democratic laissez-faire’ – which allows for only a relatively minor role for state regulation and intervention in the operation of free markets (Tomasi, 2012a, pp. 236–237).

But Tomasi’s affirmation of the goal of maximizing the size of the bundle of wealth personally controlled by the lowest-paid workers seems to me to indicate that in his free market society the ‘control’ that citizens would actually be permitted to exercise over their bundles of wealth would be heavily restricted, facilitating the pursuit of only a narrow range of practical ends and aims, and the realization of only a narrow range of reasonable conceptions of the good (Kerr, 2013). The reason for this is that in a modern liberal society many citizens affirm reasonable conceptions of the good that incorporate values and practical aims, which are likely to be incompatible with the objective of maximizing the amount of income and wealth controlled by the least advantaged members of society. The pursuit of aims and activities which place limits on the amount of time available for engaging in productive economic activity will inevitably conflict with the objective of maximizing economic growth. If the maximization of economic growth is endorsed as one of the essential objectives of social justice, then the danger is that in a society which is ‘socially just’ in this sense, space for people who seek to pursue ‘post-productivist’[3] non-materialistic kinds of practical aims might be very hard to find, not because the conceptions of the good that these kinds of practical aims help to realize are unreasonable, but because access to essential material resources would be unjustly channelled towards those seeking to pursue aims and lifestyles that are compatible with the goal of perpetual economic growth and wealth maximization (ibid.).

Doubts about the need for or desirability of continuous economic growth have a long history and have been expressed by many liberal political and economic thinkers, including John Stuart Mill and John Maynard Keynes, as well as Rawls. In the middle of the nineteenth century, Mill thought, or at least hoped, that economic growth would soon come to an end, to be replaced by a ‘stationary state’ in which economic production and consumption, as well as population levels, would remain relatively stable. Mill was keen to point out that:

a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the art of living, and much more likelihood of it being improved, when minds ceased to be engrossed by the art of getting on.

(1909 [1848], Bk 4, Ch. 6, Sec. 9)

For this reason, he thought that the stationary state ‘would be a very considerable improvement on our present condition’ (ibid., Bk 4, Ch. 6, Sec. 5). In the 1930s, Keynes stated his belief that there would come a time, probably within the next hundred years, when the economic problem would be solved by economic growth and technological progress, so that these means to human ends would no longer be required, and people would choose to devote their energies to ‘non-economic purposes’ and to ‘value ends above means and prefer the good to the useful’ (Keynes, 1930, pp. 4–7). And Rawls thought that the long-term result of ‘economic growth, onwards and upwards, with no specific end in sight’ would be likely to be ‘a civil society awash in a meaningless consumerism of some kind’ (Rawls and Van Parijs, 2003, p. 9). In his view, beyond a certain point ‘great wealth’ would be likely ‘to be a positive hindrance, a meaningless distraction at best if not a temptation to indulgence and emptiness’ (Rawls, 1999a, pp. 257–258). As Martin O’Neill and Thad Williamson (2012) argue in their review of Tomasi’s Free Market Fairness, it is doubtful whether:

indefinite growth leads to indefinite improvement in human well-being. After achieving a baseline of economic security, most people don’t find themselves happier thanks to higher incomes. What they want instead is more time for friends, families, and activities that give their lives meaning.

However, the ideal of continual economic growth remains a key policy objective – perhaps the key objective – of contemporary liberal societies, and continues to be strongly endorsed by classical, liberal political theorists and economists. It cannot be denied that there is an important sense in which fast and sustained economic growth can radically increase the options available to the members of society, in some respects providing a far greater range of choice and opportunity than would exist in a society in which economic output grows slowly and intermittently, or not at all. As Eric Beinhocker (2006) observes, the residents of New York City enjoy absolute levels of income that are astronomical in comparison to the incomes enjoyed by the members of economically less developed communities, such as the Yanomamö, a tribe living along the Orinoco River between Brazil and Venezuela: while the Yanomamö have an average income of $90 a year, the residents of New York enjoy an average income of $36,000. But, says Beinhocker:

it is not just the absolute level of income that makes the New Yorkers so wealthy: it is also the incredible variety of things their wealth can buy … The number of economic choices the average New Yorker has is staggering. The Wal-Mart near the JFK Airport has over 100,000 different items in stock, there are over 200 television channels offered on cable TV, Barnes and Noble lists over 8 million titles, the local supermarket has 275 varieties of breakfast cereal, the typical department store offers 150 types of lipstick, and there are over 50,000 restaurants in New York City alone.

(2006, p. 9)

As Deirdre McCloskey puts it, economic growth has been spectacularly successful in increasing the ‘scope’ or ‘potential’ for people ‘to do more’, and such growth constitutes a continuous improvement in ‘what Amartya Sen and Martha Nussbaum call “capabilities” – the ability to read, for example, or the potential to become an artist’ (2009, pp. 25–26). And as Gerald Gaus suggests, when we compare:

capitalist modern market economies with simple non-market economies (and Soviet-type planned economies), what is striking is not simply the difference in the absolute level of wealth, but in the range of options — the jobs one can perform, the goods one can consume, the lives one can have … modern capitalist-like market economies have astronomically increased people’s range of options.

(2010, p. 86)

However, Gaus also points out that precisely what we mean by ‘a greater range of choice’ is open to interpretation: ‘it might mean simply how many options a person has, how many options a person values, the breadth of options (not simply a lot of options to do basically similar things), and so on’ (ibid., p. 86). Some ‘options’ are clearly more valuable than others in respect of the opportunities or capabilities that they represent. For example, the option to choose this television channel rather than that, or this particular breakfast cereal or type of lipstick rather than another, would seem to be less important – to contribute less to a person’s opportunity or capability to pursue a conception of the good – than the option to work in this job rather than that, to be self-employed rather than employed by a firm, or to work less rather than more. Thus, even if we accept the argument that economic growth has radically enhanced the opportunities for the citizens of modern, economically developed societies to pursue their conceptions of the good, it is by no means evident that the ongoing pursuit of maximum economic growth will further enhance or maximize these opportunities and capabilities. One reason for this is that access to the high incomes enjoyed by the citizens of a free market fairness society might be attached to certain conditions of conduct or behaviour, such as willingness to work a minimum number of hours in paid employment. For example, if the incomes of the least advantaged members of society are ‘topped up’ by a tax credit or ‘negative income tax’ scheme of the kind endorsed by Milton Friedman (1962, pp. 158–160), then the terms of such schemes might require the recipients of credits to work a minimum of, say, 40 hours a week in return for their credits (or more, if a longer working week would maximize growth), or to be willing to work night-shifts.

Another reason why maximizing economic growth and the incomes of the least advantaged members of society might not enhance their substantive opportunities and capabilities has to do with unpredictable factors like the cost of basic essentials (such as housing and energy), and of basic productive resources (such as land and buildings) in relation to the cost of the consumption of non-essential goods and services, such as televisions, computers, mobile phones, cosmetics, air travel, and so on. If the cost of the former is relatively high in relation to the latter, then higher growth and incomes might provide the least advantaged members of society with a radically improved range of options in terms of the goods and services that they can consume, without providing any improvement in the range of lifestyles that can be pursued.[4] People who are as interested in the production of goods and services as in their consumption or who seek to pursue non-materialistic activities which are neither productive nor consumption-based, might have fewer opportunities to pursue their conceptions of the good in a high-growth, high-income society than in a low-growth or no-growth society.

For these reasons, it cannot be assumed that institutions that maximize economic growth and the incomes of the poorest in society will be likely to maximize these citizens’ substantive opportunities to pursue their conceptions of the good. Tomasi chides Rawls and other egalitarian liberals for seeking to impose their own personal and perfectionist ideals of workplace democracy and non-materialistic conceptions of the good on the substantial majority of citizens, for whom the right to exercise individual control over income and wealth is far more important than these perfectionist ideals (2012b, pp. 29–32). But even if Rawls and other social liberals are perfectionist in the way in which Tomasi suggests, it is clear that he himself also makes the same kind of mistake. Tomasi seeks to impose his own personal and perfectionist ideals of hard work and material prosperity on perhaps a substantial minority of citizens for whom the right to pursue non-materialist, non-consumerist, and non-productivist aims is essential to the protection of their fundamental interests in free moral agency (Thomas, 2016, pp. 458–462). To impose a set of socio-economic institutions that are designed to facilitate the pursuit of one set of practical aims to the exclusion of any other would be to impose a perfectionist ideal based on one particular conception of the good, and would violate the values of democratic legitimacy and free and equal citizenship. It is surely precisely this kind of perfectionism that is supposed to be ruled out by the priority of liberty, which assigns priority to citizens’ fundamental interests in developing and exercising their powers of moral personality, an important part of which is the practical pursuit by each citizen of their reasonable conceptions of the good.

What this means is that, rather than aiming for the maximization and indefinite continuation of economic growth, thereby (at least in theory) maximizing the incomes and wealth available to the least advantaged members of society, a conception of justice fit for a modern liberal society must aim to maximize the substantive opportunities for all citizens to pursue the widest range of reasonable conceptions of the good. The affirmation of the former rather than the latter objective would restrict the ‘control’ that may be exercised over income and wealth by citizens to the narrow range of decisions and choices that are compatible with this objective. The affirmation of the latter objective would facilitate the pursuit of a much wider range of conceptions of the good, including those that are incompatible with the perfectionist values of long working hours, materialism, consumerism, and continuous economic expansion. Individual citizens would then be free to choose whether or not to engage in the kinds of activities which would be likely to maximize economic growth, and whether such growth occurred would depend on the choices made and the conceptions of the good affirmed by the members of society, rather than on the implementation of policies designed by a government obsessed with the pursuit of perpetual growth. The government of a liberal society might still implement policies designed to achieve perfectionist objectives – such as increasing the rate of economic growth, or promoting the arts, or improving national sporting performances, or putting astronauts on Mars – but only to the extent that such policies do not violate citizens’ freedom to pursue their reasonable conceptions of the good.

The Priority of Substantive Opportunity

Both Tomasi’s and Rawls’s interpretations of the priority of liberty are incompatible with the prioritization of citizens’ fundamental interests in the exercise of free moral agency because both interpretations focus solely on formal rights and liberties to the exclusion of substantive opportunity. What this means, I would like to suggest, is that the Rawlsian theoretical framework (which Tomasi endorses) of two principles of justice, one protecting ‘liberty’, and the other regulating the distribution of opportunities, material resources, and other socio-economic goods, must be abandoned. If the rights to access to material resources and the substantive opportunities that these generate are no less essential than civil and political (and, in Tomasi’s case, formal economic) rights and liberties to the protection of citizens’ fundamental interests in the exercise of free moral agency, then the principle that regulates the distribution of opportunities and material resources should not be subordinate to the principle that secures the civil and political (and formal economic) rights and liberties. More appropriate for a democratically legitimate society of free and equal citizens with fundamental interests in the exercise of free moral agency would be a conception of justice consisting of one principle that regulates the distribution of all rights and liberties – civil, political, and socio-economic – which are essential institutional conditions for the protection of citizens’ fundamental interests in developing and exercising their capacities for reasonableness and rationality.

The terms of cooperation appropriate for a liberal society of free and equal citizens might then be restated as follows: each person has the same indefeasible claim to a fully adequate scheme of equal basic civil, political, and socio-economic rights and liberties, and this scheme provides adequate opportunity for all citizens to pursue a reasonable conception of the good, and is compatible with the same scheme of liberties for all. Thus, both Rawls’s first principle of justice and the two parts of his second principle are incorporated into the one principle, with no special priority assigned to the protection of civil and political rights and liberties apart from the general priority that is assigned to the demands of justice over lower-order perfectionist values. The priority of liberty narrowly conceived is recast as the priority of freedom in its widest sense – freedom as the maximization of the substantive opportunities or capabilities of citizens to pursue their reasonable conceptions of the good, and thereby to exercise their capacities for rationality and reasonableness. Freedom thus conceived is prioritized over the promotion of lower-order perfectionist ideals, and this prioritization rules out the promotion of any particular values and conceptions of the good to the exclusion or marginalization of any others.

This conception of justice as fairness would not allow the civil and political rights and liberties of some to be sacrificed for improvements in the socio-economic positions of others. Since restrictions of the civil and political rights and liberties of more advantaged citizens in order to improve the socio-economic positions of the least advantaged would always severely diminish the substantive opportunities of the more advantaged (thereby in effect making them the least advantaged), such restrictions would be ruled out by the priority of substantive opportunity. However, the restriction of the formal economic rights of more advantaged citizens – their market freedom – would not necessarily be ruled out by the priority of substantive opportunity. Restrictions of market freedom are justifiable to the extent that they may reasonably be expected to enhance the substantive opportunity of the least advantaged citizens. Restrictions of market freedom which achieve this objective are consistent with (and indeed required by) justice as fairness because such restrictions ensure that all citizens enjoy adequate substantive opportunity to pursue their conceptions of the good, and therefore to exercise their moral capacities – if the least advantaged enjoy adequate substantive opportunity, then it may reasonably be assumed that the more advantaged do so too.

Permissible restrictions of market freedom therefore do not result in the sacrifice of the fundamental interests of the more advantaged for the benefit of the least advantaged, since more advantaged citizens may be presumed to enjoy adequate substantive opportunity, and their fundamental interests in the exercise of free moral agency are thus protected. The social cooperation that is facilitated by basic socio-economic institutions can justifiably generate more substantive opportunities for some if this results in the creation of additional substantive opportunities for those with the least opportunity. In this way justice as fairness protects all citizens’ fundamental interests in the exercise of their moral capacities, and all citizens benefit from social cooperation.

Nor would the priority of substantive opportunity allow the civil and political rights and liberties of the least advantaged members of society to be restricted in order to improve their socio-economic position. Since the civil and political rights and liberties are essential to the protection of citizens’ fundamental interests in exercising free moral agency, the restriction of these rights and liberties would inevitably diminish their substantive opportunities to pursue their conceptions of the good, and would therefore be ruled out by the priority of substantive opportunity. Should it be considered necessary to assign special constitutional protection to the civil and political rights and liberties in order to strengthen the protection of citizens’ fundamental interests in the exercise of free moral agency, then such protection may be assigned consistently with the priority of substantive opportunity. To endorse the constitutional protection of civil and political rights and liberties is not in any way to affirm the priority of liberty as conceived by Rawls. As we will see in more detail in the next section, the question whether some rights and liberties should be assigned special constitutional protection is entirely separate from the question whether some rights and liberties are essential to the protection of citizens’ fundamental interests while others are not.

As I also argue in the next section, the principal danger for the citizens of a liberal democratic society is not that their civil and political rights and liberties might potentially be unjustifiably restricted, but rather that their socio-economic rights (particularly those of the least advantaged) might be unjustifiably restricted. The civil and political rights and liberties are protected by both the priority of substantive opportunity and the priority of liberty as conceived by Rawls, and can feasibly be assigned special constitutional protection, if this is considered necessary. The substantive socio-economic rights of citizens, by contrast, are not protected by the priority of liberty as conceived by Rawls (or Tomasi), but only by the priority of substantive opportunity, and it is therefore this priority rule that is more appropriate for a liberal society of free and equal citizens.

Constitutionalism, Indeterminacy, and Ideal Theory

The Idea of ‘Constitutional Essentials’

Constitutionalists like Rawls and Tomasi believe that government should be limited, and the actions of legislative assemblies and democratic majorities constrained, by certain fundamental rights and liberties that are entrenched in written constitutions. The provisions of a constitution set limits on the legislation that can be enacted by a democratically elected legislative assembly, often through the judicial review of acts of legislation, which can be declared constitutional or unconstitutional by courts assigned the power so to declare. However, constitutional provisions can also be drivers of legislative activity, for example, when constitutions demand the provision of decent housing for all citizens. Constitutional provisions (of whatever kind) are usually ‘entrenched’ in the sense that their repeal or amendment requires some kind of ‘super-majority’, say, two-thirds of the votes of citizens or legislators. Rawls is a constitutionalist in both of these senses: his ‘constitutional essentials’ would constrain legislation that violates civil and political rights and liberties, and at the same time require legislation designed to guarantee a ‘social minimum’ for all citizens (1996, p. 7). Tomasi, by contrast, is a constitutionalist only in the former sense: his constitutional essentials would protect formal economic rights and liberties by placing strong constraints on the power of the government of a liberal society to regulate and restrict the uses of property, contracts, and business activities and transactions in order to reduce the degree of socio-economic inequality, or achieve some other social objective (2012a, p. 108).

Tomasi justifies his constitutionalism by arguing that any approach which seeks to protect people from political domination by substantially reducing the degree of socio-economic inequality is bound to be self-defeating, placing great economic decision-making power in the hands of elected officials and thereby exposing individual citizens to the danger of even greater political domination. This kind of approach to dealing with the issue of political domination will be likely to create a feedback problem:

[t]he more significant the economic issues that such regimes place on the legislative agenda, the more significant the exposure of their citizens to the danger of political domination. To prevent this domination, social democratic regimes seek to equalize wealth by placing further economic issues on the legislative agenda, thus further exposing their citizens to the danger of political domination.

(ibid., p. 252)

Accordingly, Tomasi calls for the protection of citizens from political domination by ensuring that the political rights and liberties are protected at the constitutional level. Since free market fairness ‘affirms a thick conception of private economic liberties as basic rights’, market democratic institutions ‘restrict the range of economic issues that are allowed onto the political agenda’ (ibid., p. 252). In this way,

the constitutional structure of market democracies limits the ability of any group of citizens to dominate any other. The equal political freedom of citizens is secured not by (ongoing) attempts to equalize the holdings of citizens. Instead, free market fairness seeks to secure the ideal of equal political freedom up front, as a matter of constitutional right.

(ibid., p. 252)

One problem with Tomasi’s constitutionalism is that the mere existence of a constitutional provision designed to protect some kind of right or liberty does not mean that it is likely that this provision will have the desired effect in terms of limiting the actions of the legislative assembly and thereby protecting the right or liberty in question. The existence and prevalence in society of the publicly affirmed view that this or that liberty must be protected, and that this or that policy will be likely to undermine the liberty in question, are arguably more important than the mere existence of a constitutional provision. Legislative assemblies and judicial authorities interpret constitutional provisions in line with the most prevalent publicly affirmed views on such questions, and it is these interpretations that determine which policies are implemented and which are declared unconstitutional.

We can highlight this by looking briefly at the history of the interpretation and application of the Fourteenth Amendment to the United States Constitution, which was adopted in 1868. In Tomasi’s view, the Supreme Court’s use of the Fourteenth Amendment to defend economic liberty in the nineteenth century reflected

a lively awareness among jurists of the time that economic freedoms protected individuals against the danger of special interest (or classbased) legislation … A thick conception of economic liberty was still seen as a requirement of liberty and precondition of prosperity.

(ibid., p. 36)

However, as Tomasi himself explains, this doctrine of ‘laissez-faire constitutionalism’ came increasingly under attack from the beginning of the twentieth century, when Progressive thinkers argued that ‘[o]ld notions of property rights should not be allowed to tie the hands of government experts impartially pursuing important social goals’ (ibid., p. 36). After the Supreme Court declared central elements of President Roosevelt’s New Deal to be unconstitutional, Roosevelt was able to ‘remake’ the Court by appointing Justices who could be relied upon to interpret the Constitution in a way that was consistent with the New Deal policies. In other words, the dominant opinion at the time was that the Fourteenth Amendment (and other elements of the Constitution) should not be interpreted to mean that the protection of rights of private ownership should take precedence over other aspects of economic liberty, such as the right to earn a decent wage, or to have access to adequate housing and a minimum standard of living. The constitutionality of the New Deal policies was established without any change being made to the actual provisions of the Constitution.

Of course, constitutionalists like Tomasi might argue that this simply shows that constitutional provisions must be carefully drafted and highly specific in their requirements, if the rights and liberties that the provisions are designed to protect are in fact likely to be effectively protected. There might, for example, be a provision that specifically prohibits the levying of any kind of inheritance or property tax, or the enactment of any minimum wage legislation, or that sets a specific limit on the rate at which income tax can be set, say, 20 per cent. But the clear and obvious danger would then be that the adoption of such highly detailed and specific prohibitions or requirements as constitutional provisions will itself reflect some kind of special or class-based interest, and that the enforcement of this provision will protect this special interest and allow it to dominate the general public interest. The permanent removal from the political agenda of specific issues of economic policy, such as whether to impose an inheritance or property tax, whether to set a minimum wage rate, or whether to introduce a ‘negative income tax’ scheme might itself result from and perpetuate the domination of one group of citizens by another. The question whether any such measures would be necessary for the maximization of the substantive opportunities of the least advantaged members of society is surely far too complex and contentious to be permanently removed from the political agenda. Political domination is likely to be even further strengthened and entrenched, rather than reduced to a minimum, by the removal of important economic issues from the political agenda.

It also seems obvious that the practical implications of setting permanent, unalterable limits to, for example, the level at which the income tax or sales tax can be set, or the kinds of taxes that can be imposed, would be highly likely at some point to turn out to be catastrophic. Governments and legislatures must have the power to react quickly and flexibly to sometimes rapidly and radically shifting economic conditions and circumstances, and it seems highly improbable that the permanent removal from the political agenda of significant and wide-ranging questions of tax policy and institutional regulation would just happen to leave governments and legislatures with precisely the powers that they would need in every eventuality. Constitutionalists must therefore choose between vague constitutional provisions that can be interpreted differently in accordance with differing political views and opinions, and more specific provisions that become more and more dangerous and practically infeasible the more specific they become. Neither of these options would appear to be well suited to the task of protecting the fundamental interests of citizens in the exercise of free moral agency. The question, ‘Which economic issues and decisions should be removed from the political agenda?’ would always remain very much on the political agenda.

In the case of the civil and political rights and liberties, this problem might appear to be less serious, since, as Rawls suggests, it is much more readily apparent when such rights and liberties have and have not been violated, and therefore much easier to determine whether the relevant constitutional essentials have been breached. On this view, questions concerning socio-economic rights and liberties are far more complex and contentious than those concerning civil and political rights and liberties, and there is therefore much more room for conflicting interpretation in respect of the former than the latter. Even if this is the case, however, it does not follow that it is only the civil and political rights and liberties which can be assigned priority over other lower-order rights and benefits. Rawls himself seems implicitly to recognize that rights and liberties which it would be impossible (or at least highly infeasible) to protect at the constitutional level, might nevertheless be covered by the priority of liberty. Recall from Chapter 2 that the guarantee of the fair value of the political liberties, which is part of the first principle of justice, is secured not only through the enactment of constitutional safeguards designed to insulate the political process from private economic power, but also through the restriction of the socio-economic inequalities that might be allowed by the second principle of justice. Judgements concerning the appropriate level of the restriction of inequalities necessary to meet the fair value guarantee are surely as complex and controversial as those concerning the level of inequalities necessary to satisfy the difference principle, and this aspect of Rawls’s first principle therefore cannot feasibly be subject to constitutional guarantee for the same reasons that the difference principle cannot feasibly be subject to constitutional guarantee (Kerr, 2012).

The constitutional protection of the basic civil and political rights and liberties is therefore but one institutional implication of the priority of liberty, rather than constitutive of this idea: socio-economic rights and liberties may be protected by the first principle of justice but nevertheless secured at the legislative rather than the constitutional stage of the application of the principles of justice. The question of the rights and liberties that are to be identified as essential institutional conditions for the protection of citizens’ fundamental interests is entirely separate from the question of the provisions that should or should not be incorporated within a written constitution. The purpose of the priority of liberty is not to identify the rights and liberties that are to be assigned constitutional protection, but rather to provide a standpoint or criterion in terms of which the justice of a set of political and socio-economic arrangements may be publicly assessed. In order to make an accurate or reasonable assessment of the justice of a set of socio-economic institutions, the ideas of free moral agency and the fundamental interests of citizens in the development and exercise of their moral capacities must be properly specified and their implications fully worked out. It is disputes and arguments in relation to these questions which will determine the socio-economic institutions and practices that are endorsed and rejected as just and unjust by the legislative assembly and judicial authorities of a well-ordered society (Kerr, 2013).

I have argued that it makes more sense to reconceive the priority of liberty as the priority of substantive opportunity (as opposed to ‘liberty’ narrowly conceived), and to incorporate Rawls’s second principle of justice, with its concern for the interests of the least advantaged members of society, into this single principle. Thus reconceived, justice as fairness is the prioritization of citizens’ fundamental interests in the exercise of free moral agency over lower-order perfectionist aims and objectives, such as the maximization of economic growth, or the achievement of national sporting or artistic excellence, and so on. What I would now like to argue is that the sharp separation of the protection of civil and political liberties from the protection of socio-economic rights – such that the civil and political liberties are identified as essential to the protection of free moral agency while the socio-economic rights are not – would rob the difference principle, and any rights derived from it, of any real force or significance.

Recall that the difference principle requires that all social and economic inequalities must be to the greatest benefit of the least advantaged members of society. How are we to determine what will in fact generate the ‘greatest benefit’ for the least advantaged citizens? Will policies and institutions designed to maximize economic growth be to the ‘greatest benefit’ of these citizens? Or will the least advantaged members of society ‘benefit’ most greatly from the implementation of policies that maximize, not their incomes and the range of consumption options available to them, but rather the range of reasonable conceptions of the good that can be pursued, together with their substantive opportunities to pursue them? If we say that the difference principle requires the implementation of the second policy type because the rights that these policies protect are essential for the exercise by citizens of their capacity to pursue a conception of the good, then we will in effect be affirming the prioritization of these rights over other less important or significant rights and benefits. If, on the other hand, we do not have the option of appealing to the fundamental interests of citizens in the exercise of free moral agency because we have made the difference principle subordinate to the principle that protects these fundamental interests, then we may find it much more difficult to argue for the implementation of the second policy type rather than the former (Kerr, 2012).

Thus, if basic substantive socio-economic rights are excluded from the priority assigned to citizens’ fundamental interests, then the productivist, growth-maximizing interpretation of the difference principle – which will fail to maximize the substantive opportunities of citizens to pursue their conceptions of the good – is more difficult to oppose on the basis of considerations relating to the demands of justice. Similarly, as I argue in Chapter 5, the idea of the priority of substantive opportunity provides strong arguments against the institutions of ‘liberal socialism’, Rawls’s other preferred form of socio-economic organization. The absence of access to such arguments makes what I consider to be the essential task of constructing a case against liberal socialism much more difficult. For these reasons, then, basic substantive socio-economic rights and liberties should be included in the priority of substantive opportunity, in line with their status as essential institutional conditions for the protection of citizens’ fundamental interests in the exercise of free moral agency. Whether all or any of these rights and liberties should be constitutionalized is an entirely separate question. What such rights and liberties might look like in practice will be discussed in Chapter 6.

Indeterminacy and Ideal Theory

Even if we are able to identify a range of basic substantive socio-economic rights which are essential for the protection of citizens’ fundamental interest in the development and exercise of moral agency, we must also be able to identify the institutional framework within which these demands of justice would most effectively be satisfied. Can this institutional framework be identified with any kind of certainty or any degree of accuracy? Tomasi’s answer to this question is ‘No’, at least to the extent that this question arises at the level of political theory or philosophy. Tomasi follows Rawls in specifying an abstract, highly idealized model of society as the basic political unit to which the demands of political and social justice are to apply. As we saw in Chapter 2, Rawls uses the idea of a ‘well-ordered society’, the citizens of which accept and affirm the basic principles and institutions that regulate the distribution of the rights, liberties, opportunities, and benefits that are generated by the process of social cooperation. Full compliance from all citizens with the various rules and regulations needed to implement the policies designed to ‘realize’ the principles of justice is therefore taken for granted as a simplifying assumption when identifying the institutional arrangements of a just society (Rawls, 2001, pp. 8–9). In addition, the just society is conceived, at least initially, as a self-contained socio-economic unit with closed borders, the population and stock of capital of which therefore do not flow in and out in the way in which these factors do in real societies.

Tomasi endorses this abstract, idealized approach to political theory and philosophy. ‘The project of identifying normative political principles,’ he writes, ‘is the project of determining how things should turn out’ (Tomasi, 2012a, p. 211). To allow that project to be constrained by worries about how things actually will turn out would be to fall victim to ‘utopophobia’, the ‘unjustified fear of idealized political discourse’ (ibid., pp. 211–213). ‘Realistic utopianism’ is the domain of normative thinking about politics which lies between what David Estlund (2012) has identified as the extremes of ‘complacent realism’, which asks too little of people or institutions from a moral perspective, and ‘moral utopianism’, which makes demands that people or institutions could not possibly satisfy (cited in Tomasi, 2012a, p. 210). On the realistic utopianism approach (as Tomasi sees it), a socio-economic institutional model may be said to ‘realize’ the principles of justice if it incorporates ‘arrangements that seek justice in a way that is compatible with the general laws of political sociology’, such as those of psychology, economics, and social theory (ibid., pp. 222–223, emphasis in original).

What this means, says Tomasi, is that an institutional model, such as ‘democratic laissez-faire’, cannot be rejected as unjust merely on the basis that this set of institutional arrangements would be highly unlikely to satisfy the demands of justice, as a result of, say, the imperfections of real markets. Similarly, an institutional model like the property-owning democracy cannot be rejected as unjust merely on the basis that this set of institutional arrangements would be highly unlikely to satisfy the demands of justice, because the progressive taxation which is characteristic of this model would cause labour and capital to move to different political territories. Institutional models can only be rejected as unjust if it is sociologically impossible for these arrangements to satisfy the demands of justice, or if the principles that they aim to satisfy are themselves unjust (ibid., pp. 222–223).

For the sake of argument, I shall broadly accept this abstract idealized approach when attempting to identify a politically and socially just set of institutional arrangements in Chapters 5 and 6. However, I shall do so with two caveats. First, I shall from time to time challenge Tomasi’s and others’ accounts of ‘the general laws of political sociology’, and of the implications of these laws with regard to the kinds of problems that may be set aside as merely practical concerns that do not detract from the philosophical attractiveness of a particular institutional model. For example, Tomasi suggests that, on the ideal theoretic ‘realistic utopianism’ approach, we are to imagine that

[e]conomic planners have all the information they need so that every regulation and law produces its desired effects and no unintended ones. Labor markets, if the candidate regime includes them, perform as efficiently as envisaged in their textbook ideals. Political bureaucracies function without friction, waste, or avarice.

(ibid., p. 206)

What I shall argue is that where there are certain general (though not necessarily generally accepted) laws of sociology or economics that enable us to predict with some confidence that, say, economic planners will not have all the information they need, or that labour markets will not perform as efficiently as envisaged, or that taxes on production and employment will not generate public revenue without distorting and suppressing economic activity, then we may have good reason to reject, or at least to challenge the desirability of institutional arrangements that do not take account of these laws. Ideal theory does not mean that all practical considerations are irrelevant to the identification of just institutional arrangements. Just because certain possible undesirable consequences of a particular institution or policy are unintended and unforeseen by those who endorse this institution or policy, this does not mean that the institution or policy cannot be rejected as unjust if the undesirable consequences in question are foreseeable and preventable.

Second, in challenging and endorsing particular institutional models, I shall not restrict my attention solely to abstract ideal theoretic analysis, but will also consider questions of practical effectiveness and feasibility. As Tomasi notes, many liberal political theorists and philosophers ‘react in a guarded way’ to what they see as the over-abstract and idealized character of much recent liberal political thought (ibid., pp. 206–207). Tomasi himself acknowledges that ‘[m]ethodological idealization obtains its power by gaining distance from the merely actual. Admission to the tower of identificatory idealization must be paid for in the coin of political relevance’ (ibid., p. 223). In Chapters 5 and 6, I shall develop the case in favour of an unorthodox market democratic version of the property-owning democracy, taking account of both ideal and non-ideal factors and considerations. I begin, in Chapter 5, first, by rejecting the liberal socialism institutional model on the basis of considerations relating to the priority of substantive opportunity, and, second, by further developing the idea of unorthodox or real market freedom outlined in Chapter 3. The institutions that protect this form of freedom will then be shown in Chapter 6 to be instrumentally highly important for the protection of citizens’ fundamental interests in the exercise of free moral agency.

Notes

2

For a similar line of criticism that focuses on the conceptual confusion that undermines Tomasi’s conception of ‘private economic liberty’, see Gourevitch (2015, pp. 382–384).

3

Post-productivists, as Robert Goodin explains, make the point that economic productivity ‘can be sustained perfectly well without trying to put everyone into full-time work’, and focus on striving ‘to secure people’s autonomy by ensuring that people receive an income adequate to their needs, on terms which impinge minimally on their freedom of action’ (2001, pp. 14–15). This aim of securing autonomy implies (among other things) ‘that people’s income should come to them in such a way that leaves them with sufficient “discretionary time” in which actually to make use of it’ (ibid., p. 16). Post-productivists recognize that time ‘is the ultimately scarce good’, that people ‘can be, and often are, “time poor” as well as “money poor” ’, and that controlling how people spend their time ‘is an important element of social control and a significant barrier to their full autonomy’ (ibid., p. 16).

[It is true] that the poorest may now in certain ways enjoy what the richest a century ago could not have commanded, but this does not show improvement of condition so long as the ability to obtain the necessaries of life is not increased. The beggar in a great city may enjoy many things from which the backwoods farmer is debarred, but that does not prove the condition of the city beggar better than that of the independent farmer.

(1920, Introduction)

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5 Liberal Socialism and the Right to Private Property

Introduction

In this chapter, I argue that the protection of formal rights of private ownership and freedom of contract is, up to a certain point, an essential feature of a politically and socially just liberal democratic society, the basic institutions of which satisfy the requirements of the priority of substantive opportunity. From this it follows, so I argue, that the liberal socialist institutional model endorsed by many social liberals is ruled out by the priority of substantive opportunity, and is therefore inappropriate for a liberal society of free and equal citizens. However, as I have already suggested in Chapter 4, the priority of substantive opportunity does not rule out progressive interventionist institutions designed to enhance the substantive opportunities of less advantaged members of society by restricting the formal rights of private ownership and freedom of contract – the market freedom – of more advantaged citizens. In other words, justice as fairness demands that formal rights of private ownership and freedom of contract be protected only to the extent that this may reasonably be expected to enhance the substantive opportunities of the least advantaged members of society.

As we will see in Chapter 6, the question of the extent to which market freedom may justifiably be restricted is not one which can be settled solely by theoretical considerations relating to the conception of justice outlined in Chapter 4 (or indeed to any such conception). Once it is established that capital and productive resources should be largely privately owned, and that liberal socialism should therefore be excluded from the list of institutional models that might be appropriate for a liberal society, it is much less clear how far rights of private ownership may justifiably be restricted by progressive regulation and redistributive taxation. However, I also argue in Chapter 6 that what can be established on the basis of theoretical considerations relating to the conception of justice outlined in Chapter 4 is that the protection of (real) market freedom will be an important part of any just liberal society. The priority of substantive opportunity, I shall argue, rules out any institutional mechanisms – whether laissez-faire or social democratic – which take the form of alternatives to the ‘market democratic’ institutions that ensure the effective protection of real market freedom.

The secondary purpose of this chapter is to provide a more detailed account of the conception of real market freedom outlined in Chapter 3, since it is specifically this form of freedom, rather than orthodox ‘faux’ market freedom, which must be protected in a just liberal society. In developing this idea, it is important in particular to emphasize that the socialization of the rental value of land is not the same thing as the socialization of land itself: the socialization specifically of rent rather than of land itself opens up conceptual space for a distinct category of ownership, which I shall refer to as ‘quasi-private ownership’. In a market democratic society, property in land is quasi-private rather than fully private in the sense that the rights of private ownership that apply in respect of such property are protected subject to the condition that the rental value of holdings of such property is socialized rather than appropriated by private owners. Property in land must be quasi-private rather than fully private because it is only through the socialization of rent that the rights of full private ownership, which apply in respect of privately created property, can be effectively protected and secured for all citizens. Thus, the idea of property in land as quasi-private property provides the basis for the distinction between orthodox and unorthodox market democracy elaborated more fully in Chapter 6. However, before embarking on a detailed discussion of the idea of the right to private property, I shall address the question whether so-called ‘liberal socialism’ is an appropriate institutional model for a liberal democratic society of free and equal citizens.

Liberal Socialism and the Right to Private Property

The Right to Workplace Democracy

When considering the question of the form of socio-economic organization that is most appropriate for a just society, Rawls distinguishes between the following five types of socio-economic regime: (1) laissez-faire capitalism; (2) welfare-state capitalism (WSC); (3) property-owning democracy (POD); (4) liberal socialism (LS); and (5) command-economy socialism. Both laissez-faire capitalism and command-economy socialism are, in Rawls’s view, clearly incompatible with the principles of justice: laissez-faire capitalism because it protects only formal rights and liberties, with no requirements concerning the distribution of the social and economic resources that make these formal rights and liberties substantively valuable; and command-economy socialism because it violates freedom of occupation and perhaps other basic rights and liberties (2001, pp. 137–138). Of the remaining three forms of socio-economic organization, only POD and LS are fully compatible with the principles of justice, since WSC permits the existence of significant or even extreme socio-economic inequalities that undermine the three ‘egalitarian’ features of justice as fairness (the guarantee of the fair value of the political liberties, fair equality of opportunity, and the difference principle).

Somewhat controversially, therefore, Rawls retained in his later work the view expressed in A Theory of Justice that both the private propertybased POD model and the liberal socialism model – in which capital and productive resources are predominantly publicly rather than privately owned – provide the institutional context within which the principles of his conception of justice as fairness would be fully realizable (1999 [1971], pp. xv–xvi; 2001, p. 114). Rawls thought that the choice between these two sets of institutional arrangements would most appropriately be determined ‘by historical conditions and the traditions, institutions, and social forces of each country’, rather than by the requirements of basic justice (1999 [1971], pp. xv–xvi). Commentators and critics of Rawls’s work have tended not to follow him in this institutional agnosticism, championing one or the other of the two forms of socio-economic organization (Di Quattro, 1983; Freeman, 2007a; 2007b; Krouse and McPherson, 1988; Schweikart, 2012).

What is it, then, that distinguishes LS from POD, if indeed there is any significant distinction to be drawn? An LS society, as conceived by Rawls, would, like a POD, make use of market arrangements, rather than centralized, bureaucratic state control of the economic process. In addition to the efficiency gained from organization in terms of market arrangements, the market system has the advantages of being consistent with the basic rights and liberties covered by the first principle of justice and with fair equality of opportunity (citizens having free choice of careers and occupations), and of allowing for the ‘decentralized exercise of economic power’ (Rawls, 1999 [1971], p. 241). Under socialism, however, the means of production and natural resources are publicly owned, and ‘firms are managed by workers’ councils … or by agents appointed by them’ (ibid., p. 248). In his lectures on the history of political philosophy Rawls describes liberal socialism as involving ‘a property system establishing a widespread and a more or less even distribution of the means of production and natural resources’ (2008, pp. 322–323). Martin O’Neill has suggested partly on the basis of this remark that ‘one may speculate that there would be, in effect, little real difference (other than in the specification of formal property relations) between a liberal socialist regime and some variant of property-owning democracy’ (2009, p. 393, n. 10). However, the widespread distribution of the means of production and natural resources does not preclude the centralized public ownership of these resources, and I shall argue that the specification of formal property relations constitutes a significant point of difference between the two forms of socio-economic organization.

Since even capitalist welfare state societies may often be characterized by a certain degree of public ownership and control of the means of production, I will assume that one of the principal differences between LS and POD is that under socialism a larger proportion of productive resources will tend to be publicly owned and controlled, while a POD would typically be characterized by a comparatively larger degree of private ownership and control of such resources. Given that POD, like WSC, is compatible with the existence of worker cooperatives, I will assume that the other main difference between the ideas of POD and LS is that, while, in a POD, the organization of productive enterprises as worker cooperatives is optional, in a socialist society, democratic organization of the workplace is mandatory. In this section I shall argue that citizens’ fundamental interests in the exercise of free moral agency cannot adequately be protected in a society in which capital and productive resources are largely publicly owned and controlled, and non-democratically organized large productive enterprises are prohibited by law. I shall argue, then, that to the extent that there is any significant distinction between the POD and LS institutional models, the LS model should be rejected as inappropriate for a liberal society of free and equal citizens.

In order to develop this argument, I shall take a closer look at the idea of LS by considering a range of arguments presented by Joshua Cohen in favour of a form of democratic socialism that incorporates the two features that distinguish LS from POD. Cohen outlines an abstract conception of deliberative democracy and indicates how this conception provides a way of unifying and deepening four separate strands of argument that draw broadly socialist conclusions from democratic principles (1989, p. 26). A deliberative democracy, as conceived by Cohen, is a form of association, the members of which ‘share a commitment to the resolution of problems of collective choice through public reasoning, and regard their basic institutions as legitimate insofar as they establish a framework for free public deliberation’ (ibid., p. 30). This framework of public deliberation produces outcomes which ‘are democratically legitimate if and only if they would be the object of an agreement arrived at through a free and reasoned consideration of alternatives by equals’ (ibid., p. 32). Cohen then outlines a form of socialism consisting of five main features, which, in his view, comprise a system of institutional conditions that are necessary if free and reasoned deliberation among equals can proceed in the first place (ibid., p. 39). The first of these features is that of a framework of legally codified rights to personal security, and to the liberties of thought, expression, association, and political participation. The second is the existence of competing political parties that advance programmes addressed to the common good. The third and fourth features are ‘the public control of investment, realized through a scheme in which publicly owned means of production are operated by worker-managed firms’ (ibid., p. 40). Finally, there is the feature of the use of markets and other non-command forms of transaction and collaboration among firms.

The form of socialism outlined by Cohen thus fits the description of Rawls’s LS society, and may be distinguished from the idea of the POD in the manner proposed above. I consider first the requirement that all productive enterprises are to be owned and managed by the workers in these enterprises. In such enterprises,

all and only the workers on the firm have voting rights concerning the operations of the firm – including what to produce, how much to produce, what the distribution of earnings among members should be, and whether to expand the scale of operations.

(ibid., p. 40)

The form of socialism outlined by Cohen is in this respect similar to the model of ‘Economic Democracy’ proposed by David Schweikart (2012) in explicit contrast to the POD model. Under Economic Democracy, large firms that constitute the ‘commanding heights’ of the economy are publicly owned, but legally controlled by those who work for the firm, rather than by the state (ibid., p. 210). The control exercised by the workers in a firm is democratic (one person, one vote), with workers electing a council to perform ‘the function that the board of directors performs in a capitalist corporation, namely appointing and overseeing management, approving or vetoing large-scale changes in company policy, [and] approving or vetoing major investment projects’ (ibid., p. 211).

In Cohen’s view, workplace democracy is supported by his conception of deliberative democracy because it provides the conditions favourable for the exercise of the deliberative capacities, which is part of the commitment to autonomy incorporated in the deliberative conception (1989, p. 46). This view, Cohen argues, is strengthened by what he refers to as the ‘psychological support’ argument (Hsieh, 2008; O’Neill, 2008, pp. 29–55), which states that capitalist property relations are ill-suited to a democratic society because such relations ‘vest final authority in the owners of capital’, thereby limiting ‘the extent of intra-firm democracy … fostering passivity and a narrower basis of political judgment’ (Cohen, 1989, 29).[1] Capitalist property relations therefore fail to contribute to the formation of an active character and to the development of a sense of the common good, and thus fail to generate a fully democratic state. Workplace democracy is supported by this argument because the exercise of the deliberative capacities in an arena that bears directly on everyday life will contribute to an active character and can be expected to aid the development of a sense of the common good (ibid., p. 46).

This feature of a democratic socialist society is also in Cohen’s view strengthened by what he refers to as the ‘parallel case’ argument (Dahl, 1985, Ch. 4; Walzer, 1983, pp. 291–303; Young, 1979, pp. 30–46) which holds that the private ownership of capital should be abolished, or at least heavily restricted, because it interferes with the democratic governance of enterprises, which itself is justified for the same kinds of reasons that justify the democratic governance of a liberal society. Thus, workers should have the right to determine the rules that regulate workplace cooperation through their own deliberation, given that they have the capacity to assess these rules, and that a productive enterprise, like the state, constitutes a form of cooperation for common benefit (Cohen, 1989, p. 27). If the state is to be governed democratically, then so must the workplace, unless there is some morally significant distinction between these two forms of association which supports the view that the workplace need not be governed democratically, a distinction which, in Cohen’s view, cannot be made.

Against the psychological support argument and the argument from autonomy, it might reasonably be objected that, in a modern liberal society, mandatory workplace democracy is not an essential condition for a viable and inclusive democratic process, since it is likely that there will be contexts other than that of the workplace within which the deliberative capacities might be exercised and an active character and sense of the common good developed. In response to this, it might then be argued that although there are indeed other contexts within which these capacities and character traits might be exercised and developed, the workplace is nevertheless by far the most important such context, since it is the place where many people spend most of their time and energy, not necessarily because they choose to do so, but often because they are compelled by economic circumstances. On this view, workplace democracy would enable citizens to develop and exercise their deliberative capacities much more fully and effectively than would be possible if they worked predominantly in non-democratic hierarchically structured workplaces (O’Neill, 2008, pp. 35–36).

Cohen considers the counter-argument that ‘a system in which all firms are self-managed might be thought to impose objectionable constraints on the liberty of those citizens who wish simply to work for a wage’, but suggests that this argument has little force, since there seems to be no fundamental interest that is protected by the liberty to sell labour for a wage. Constraints against wage labour therefore seem ‘no more objectionable than constitutional prohibitions of slavery or the requirement in the U.S. Constitution that there be republican forms of government in the states’ (Cohen, 1989, p. 48). Cohen is, I think, far too quick to dismiss the argument that the liberty of workers who prefer to work for a wage in non-democratically organized workplaces is constrained by compulsory workplace democracy. It seems plausible to suggest that there would be a tendency among many citizens of modern liberal societies to object strongly to changes in working practices that are the result of legal compulsion, or to the ongoing legal restriction of their options, particularly when the changes are being enforced and the options restricted on the basis of reasons that many of those affected would be unlikely fully to appreciate – namely, that in the absence of such restrictions, they lack the ‘active character’ and ‘sense of the common good’ necessary for effective democratic deliberation. Tomasi perhaps has a point in suggesting that many workers ‘would hear the clang of a bell calling them to a workplace committee meeting as an infringement on their independence rather than as an enlargement of it’ (2012, p. 191).

However, perhaps the strongest argument against the legal enforcement of workplace democracy is that it would constrain the liberty of citizens who believe they have good reason to set up an enterprise in which decisions concerning the amount of capital to be invested and the direction in which this investment is to be channelled are not necessarily made by all those who work for the enterprise in question. The liberty to form such an enterprise might plausibly be thought to protect fundamental interests connected with the pursuit of a conception of the good. Consider the fundamental interests of a citizen or group of citizens who hold a conception of the good that incorporates the practical aim of establishing a productive enterprise, the objective of which is to facilitate the realization of a specific religious, philosophical, or moral view or conviction, or a specific set of such views or convictions. Consider, for example, an ethical conviction concerning the importance of environmental sustainability, which generates a commitment to particular kinds of agricultural or other production methods thought necessary to achieve this ethical objective.

We can easily imagine a scenario in which a group of citizens of a society organized as a POD invest time, energy, and capital in forming a productive enterprise designed to facilitate the realization of the ethical convictions incorporated in their conceptions of the good. After a period of time, they seek to expand their enterprise in order to improve its effectiveness in facilitating the realization of the ethical convictions in question, and accordingly admit additional participants to work in the enterprise. After a further period of time, some of these newer participants develop alternative ideas relating to the ethical views the enterprise is designed to realize, and to the kind of enterprise needed to facilitate the realization of these views. These alternative views concern crucially important issues such as the amount of capital to be further invested and the direction in which this capital should be invested, and conflict with the relevant views of the original founders of the enterprise.

In this case, the fact that the institutional context is that of a POD in which workplace democracy is optional rather than mandatory is of fundamental importance to the interests of the original founders of the enterprise in pursuing their conceptions of the good. The original founders are able to maintain the design and functioning of the enterprise in line with the ideas and aims for the realization of which they formed the enterprise only because the newer participants did not gain the right to exercise control over issues concerning the amount of capital to be further invested in the enterprise and the direction in which this capital should be invested. Some of these newer participants might then decide to exit from the enterprise and form a new enterprise designed to facilitate the realization of the ethical views to which they have become committed, leaving the founders of the original enterprise to continue in the direction in which they have already invested so much time, energy, and capital.

In a socialist society in which all productive enterprises must be owned and controlled by all those who work in these enterprises, such a scenario would be less likely to occur. Instead, the newer participants in the enterprise might gain control over investment decisions from the original founders, and subsequently radically change the nature and design of the enterprise so that it ceases to facilitate the realization of the ethical convictions of the original founders. Even when the founders of a productive enterprise are motivated not by some strong ethical conviction, but rather by the simple desire to set up and develop a flourishing and successful business, or even simply to make money by generating financial profits, it is not clear that they should not be free to try to satisfy these desires, provided that there are others in society who have no objection to working for a wage in a hierarchical non-democratic firm.[2] As Gerald Gaus observes, there are many different forms of productive work that might be valued as aspects of the human good, including those involving:

organization, personal initiative, and innovation in production. One of the basic themes of Ayn Rand’s novels is that entrepreneurship is itself a form of human flourishing. Start-ups, innovation, risk-taking, organizing groups to solve problems and implement new ideas – all are basic to the projects, plans and ideals of many.

(2012, p. 100)

It seems plausible to suggest, then, that the right to exercise individual control over important investment and organizational decision-making processes in non-democratically organized productive enterprises does constitute a fundamental personal liberty, the protection of which will not harm the interests of those willing to participate in such enterprises.[3]

All of this seems to suggest that a more appropriate approach to the issue of workplace democracy would be to focus on the effective protection of the substantive opportunity of workers to exit from existing productive enterprises in order to form new enterprises that are more compatible with their moral values and commitments, such as that of workplace democracy. This might mean not only that formal rights to freedom of occupation must be protected, but also that substantive rights to access to the property and capital needed to exit from an existing productive enterprise in order to form an alternative one must be secured (Taylor, 2014, pp. 453–454; Thomas, 2016, p. 414). Such a substantive right of exit would need to take account of numerous practical considerations, such as high exit costs faced by workers (including the costs associated with locating a new job and making the transition to it, and the costs faced by workers whose contribution to a specific firm depends upon an investment in developing firm-specific human capital in order to increase productivity in that specific firm (Hsieh, 2008, p. 89)), as well as the costs attached to forming a new enterprise (including those resulting from significant barriers to entry).

The protection of such a substantive right to form a productive enterprise would seem to constitute a more appropriate balance between the right to exercise democratic control in the workplace and thereby to participate in processes of free deliberation in that particular context, and the right to form and exercise control over a non-democratically organized productive enterprise and thereby to pursue the particular conception of the good that incorporates this practical aim. Of course, whether such substantive rights would need to be secured in order to maximize the substantive opportunities of the least advantaged members of society to pursue their conceptions of the good is at this stage an open question: it might turn out that the progressive institutions of the unorthodox market democratic POD would maximize the substantive opportunities of the least advantaged members of society, and that the implementation of additional interventionist measures would be counter-productive. But as we will see more clearly in Chapter 6, it is highly implausible to suggest that orthodox market democratic laissez-faire or limited government institutions would secure substantive opportunities for less advantaged members of society to exit from existing productive enterprises in order to form new, democratically organized workplaces. Such institutions would be much less likely adequately to facilitate the development in citizens of an active character and sense of the common good, and of effective deliberative capacities. The arguments for workplace democracy considered above are therefore more effective as arguments against orthodox market democratic laissez-faire capitalism than they are against the market democratic POD.

Cohen’s ‘psychological support’ argument therefore does not strengthen the case for legally enforced workplace democracy. But what of his ‘parallel case’ argument? This argument identifies workplace associations as essentially identical in all relevant respects to the civil association of society, since both are cooperative ventures for mutual advantage, the members of which have the capacity to assess the rules that regulate this cooperative process. However, although productive enterprises do comprise forms of cooperation for mutual advantage, and although workers do have the capacities necessary to assess the rules that regulate workplace cooperation (assuming that these capacities have been exercised adequately), a productive enterprise is nevertheless a very different kind of association from that of a civil association, and the deliberative ideal of justification does not carry over from one form of association to the other in the way that Cohen suggests (Taylor, 2014, p. 453). An enterprise is a different kind of cooperative association from the state, first, because it is a purposive association that incorporates aims and objectives in addition to the common purpose of the citizens of a democratic state, and, second, because it is a form of association from which members can exit while remaining free to pursue their conceptions of the good.[4] For these reasons, it does not follow from the idea that the state ought to be governed democratically that productive enterprises ought also to be governed democratically.

If in an orthodox market democratic society, the right to exit is not adequately or effectively secured, then this response to the parallel case argument clearly loses some of its force. But, again, this is an argument against orthodox market democracy, not one in favour of liberal socialism. It seems highly unlikely that the most appropriate solution to the problem of ineffectively secured exit rights is to resort to the legal enforcement of workplace democracy, given the uncertain impact of such a policy on economic efficiency and productivity, and the threat that legal enforcement would pose to the liberties of workers who would prefer to work for a wage in a non-democratic hierarchical firm, and business leaders and entrepreneurs who have some kind of ethical goal or vision to realize, or who simply have a strong desire to ‘be the boss’, to control and take responsibility for investment and organizational decision-making processes. This aspect of the LS institutional model is therefore inappropriate for a liberal society of free and equal citizens.

Public Ownership of Productive Resources

According to Cohen’s ‘structural constraints argument’, the requirement for public control of the investment of productive resources stems from the fact that private control ‘limits the democratic character of the state by subordinating the decisions and actions of the democratic state to the investment decisions of capitalists’ (1989, p. 28). Private control of the investment of productive resources generates a situation in which political decisions ‘are structurally constrained because the fate of parties and governments depends on the health of the economy, the health of the economy on investment decisions by capitalists, and investment decisions by capitalists on their expectations of profits’ (ibid., p. 28). Public control of the investment of capital and productive resources therefore removes the significant and unjustifiable constraints on the collective choices of citizens imposed by private control of the investment of these resources.

As an example of such structural constraints, Cohen asks us to imagine a scenario in which ‘citizens in a capitalist democracy want simultaneously to increase the rate of growth and to redistribute income’, when ‘doing so requires both stimulating investment and increasing the progressivity of the tax system’ (ibid., p. 28). Private control of investment would be an obstacle to this collective decision because capitalists can be expected to feel disinclined to invest their capital when they expect that more of their gains will be taxed away. Since this obstacle may reasonably be expected to result in long-term material losses for the whole society, the citizens of this capitalist democracy will choose not to introduce the scheme after all, despite their desire to do so. Public control of investment is therefore required by Cohen’s deliberative democratic ideal because it facilitates the implementation of the collective democratic decision to increase the rate of growth and redistribute the income that this growth generates. Public decisions about ‘the share of national income to be devoted to investment and the desired pattern of that investment’ would be implemented ‘by fixing the terms on which capital is rented to firms’ (ibid., p. 40). Political parties ‘would be expected to formulate programs about the direction and scope of investment. And the existence of programs of this sort would, in turn, encourage public deliberation about the terms of material development’ (ibid., p. 40).

Cohen is keen to emphasize that the various constitutional rights that protect, for example, freedom of thought and expression, and that impose limits on the activities of democratic assemblies and on the legislation that these assemblies can enact, do not impose constraints on public deliberation in the way that private ownership of capital does. Rather, such constitutional rights and freedoms help to establish the framework of conditions under which public deliberation can proceed at all. In Cohen’s view, it is not necessary to compromise between the deliberative democratic conception and a wholly independent set of political principles (such as those that guarantee freedoms of thought and expression), since these principles are part of the deliberative conception itself (ibid., pp. 37–38). The participants in a deliberative procedure ‘do not regard themselves as bound by the existing system of rights, except insofar as that system establishes the framework of free deliberation among equals’ (ibid., p. 33). In order to defend private control of investment and ownership of capital, it would therefore be necessary somehow to show that ‘the liberty to own the means of production is similarly a precondition of deliberation’, which, in Cohen’s view, seems unwarranted (ibid., p. 43).

However, this account of the deliberative process as unconstrained by any existing external system of rights seems incompatible with the ideal of democratic legitimacy, in terms of which basic social and political institutions are justified. The characterization of a deliberative democracy as an association, the terms of which either provide the framework for or are the results of the deliberation of its members, would seem to be inconsistent with the substantive, rather than merely procedural, nature of many conceptions of justice, such as Rawls’s justice as fairness. A substantive conception of justice is one, as Cohen himself puts it, that ‘comprises standards of justice for assessing not only processes of collective decision making but also the outcomes of those processes’ (Cohen, 2003, pp. 90–91). A substantive conception, such as justice as fairness, identifies certain fundamental interests in the exercise of free moral agency from which it is possible to derive standards of justice in terms of which deliberative democratic processes and their outcomes may be assessed. If a policy or institutional mechanism, which is the outcome of a deliberative democratic process, fails to satisfy the demands of justice derived from the fundamental interests of free and equal citizens, then this democratically endorsed policy or institutional mechanism must be rejected as unjust.

When assessing the justice of particular institutional mechanisms it is therefore necessary to compromise between rights or institutional features (such as the public control of capital and its investment) that may be necessary to safeguard the framework of free deliberation, and rights or institutional features (such as the private control of capital and its investment) that may be essential to the realization of other requirements of justice, such as those relating to the pursuit by individual citizens of their determinate conceptions of the good. As Amy Gutmann points out:

[w]hen any two liberties conflict – whether they be political or personal – the method of deciding which should give way to the other depends on an assessment of the relative importance for representative persons of the particular liberties in the overall scheme of equal liberties … Free and equal citizens can justify limiting some political and some personal freedoms of all for the sake of better securing other freedoms for all.

(2003, pp. 182–183)

So if a right to private ownership and control of the means of production is an essential institutional condition for the protection of a significant personal liberty, then this might conflict with and need to be balanced against the requirement for public ownership of the means of production (assuming, for the moment, that this is indeed a requirement of the ideal deliberative process).[5]

We can highlight the plausibility of the claim that a right to private ownership and control of capital is an essential institutional condition for the protection of a significant personal liberty by taking a closer look at the specific scenario described by Cohen as an example of the structural constraints problem. In the scenario described by Cohen, citizens make a democratic decision to implement policies designed to increase the rate of economic growth by stimulating investment, and to ensure a suitably equitable distribution of the proceeds of this growth through progressive taxation. Private ownership of capital and the means of production impedes the implementation of the necessary policies, thereby undermining the democratic process. The aim of public control of investment is to remove the limit on deliberation imposed by private control of investment ‘by making the conditions of economic life part of the subject matter of political debate’ (Cohen, 1989, pp. 41–42). The socialization of control over the investment of productive resources is also a distinguishing feature of the model of Economic Democracy defended by David Schweikart (2012). In the liberal socialist society, as envisaged by Schweikart, publicly owned financial capital would be loaned out to businesses by public banks whose officers would ‘rank loan applications according to the projected profitability of the investment request, its job creating potential, and whatever additional considerations the community wishes to impose’ (ibid., p. 212, emphasis added).

Thus, under the models of liberal socialism defended by both Cohen and Schweikart, if a democratic decision is made to increase the rate of economic growth and share the proceeds of this growth fairly, and if, in order to achieve this objective, access to productive resources is limited to enterprises that are intended and designed to generate significant financial profits (which may take the form of dividend payments to worker-owners), then only these kinds of enterprises will have access to productive resources. The implementation of such a policy would presumably serve the interests of citizens who affirm conceptions of the good that incorporate values and beliefs that are compatible with the objective of increasing the rate of growth (which would presumably be the majority of citizens, if the policy in question is the result of a fair democratic process). The same could be said of any other condition that is attached to access to productive resources in order to realize some democratically endorsed cultural, religious, or other goal or objective.

But as I have argued in Chapter 4, in a modern liberal society characterized by reasonable pluralism and the affirmation of a wide variety of reasonable conceptions of the good, it is likely that a minority of citizens, perhaps even a substantial minority, will affirm conceptions of the good that incorporate values and commitments which are not compatible with the democratically endorsed objective of increasing the rate of economic growth, or realizing some other perfectionist cultural or religious values. In these cases, citizens who affirm the conception of the good in question will seek to pursue aims and objectives that may not be compatible with the goal of maximizing financial profits, or with the broader goal of increasing the rate of economic growth. Even when the pursuit of any particular perfectionist objective (whether economic, cultural, religious, or some other) is approved democratically, there will in any modern pluralistic liberal society always be a substantial minority of citizens for whom the pursuit of this objective is undesirable. In such societies, the enforced pursuit of these objectives is ruled out by the priority of substantive opportunity, and is therefore unjust.

This inevitable incongruence between the various conceptions of the good held by the citizens of modern liberal societies highlights a significant degree of tension between the two features of the form of LS under consideration (democratic worker control of enterprises and public control of investment), and casts doubt on the coherence of the model. Consider the case described by Schweikart of a democratically organized enterprise, in which the workers decide not to give top priority to maximizing income, but rather to reorganize work ‘so as to make it more satisfying, more skill enhancing, more in accord with “the Aristotelian Principle” ’,[6] and choose ‘to sacrifice a bit of “efficiency”, and hence income to do so’ (ibid., p. 18). This is the kind of scenario that in Schweikart’s view is compatible with the incentive structure of a democratically organized enterprise, but incompatible with that of a capitalist enterprise or an enterprise that exists within the institutional context of a POD. It is also a scenario that is consistent with Cohen’s characterization of worker-managed firms as firms in which the workers make democratic decisions concerning the operations of the firm, ‘including what to produce, how much to produce, what the distribution of earnings among the members should be, and whether to expand the scale of operations’ (1989, p. 40).

The problem for the liberal socialist is that in a society in which productive resources are publicly owned and production and investment publicly controlled, the conditions attached by the public authorities and investment agencies to access to capital and productive resources will be likely to prevent workers in democratically organized firms from exercising any real control over the operations of the enterprise, particularly those operations with which Cohen and Schweikart are primarily concerned. If high interest rates or a high level of taxation (or any other conditions) are attached to access to productive resources in order to realize some democratically endorsed objective, then the capacity of workers in democratically organized firms to determine, for example, what and how much is produced, or to determine any other aspects of the operation of the firm, might be greatly restricted. If capital and other productive resources are publicly owned and their utilization subject to public control, there is then an obvious and serious limitation placed on the autonomy of those engaged in the productive utilization of these resources. This problem would seem to be unavoidable in a society in which ‘the conditions of economic life’ are made ‘part of the subject matter of political debate’.

For these reasons, it is clear that the socialization of ownership and control of productive resources is not the appropriate way in which to balance the fundamental interest in equal participation in the democratic process with the fundamental interest in the pursuit of a determinate conception of the good. The socialization of ownership and control of productive resources does much more than secure equal participation in the democratic process: such an institution also provides the majority of citizens with the power to compel unwilling minorities to pursue particular perfectionist aims and objectives. To be sure, (roughly) equal participation in the democratic process is one of the fundamental interests of all citizens. One of the most important ways in which citizens of liberal democratic societies are able to exercise free moral agency is by exercising their capacities for reasonableness and a sense of justice (one of the two powers of moral personality) by expressing, through participation in the democratic process, their considered judgements about the demands of justice and the institutions and policies needed to satisfy these demands. This they do by voting in free, regular, and frequent elections, by deliberating with one another on issues relating to these elections, and by standing for political office.

However, any tension which might exist between citizens’ fundamental interests in exercising their capacities for rationality (by pursuing a conception of the good) and exercising their capacities for reasonableness (by participating in the democratic process) is not appropriately resolved by socializing the ownership and control of productive resources. If democratic politics are indeed constrained by the structural power of privately owned productive resources, this is not something that can justifiably be remedied by abolishing the private ownership and control of these resources. The fundamental interest in democratic political participation must always be balanced against the fundamental interest in pursuing a conception of the good, and the institution of private property is essential to the effective protection of this fundamental interest. These competing interests may, if necessary, be balanced by POD institutions which are designed, as Rawls put it, to ‘disperse the ownership of wealth and capital, and thus to prevent a small part of society from controlling the economy, and indirectly, political life itself’ (1999 [1971], pp. xiv–xv; 2001, pp. 137–140). Additional constitutional safeguards might then be put in place in order to insulate the political process from any concentrations of economic and social power that remain (Rawls, 1996, p. 328). This twin strategy of constitutional safeguards plus (if necessary) measures designed to ensure the broad dispersal of privately owned property would surely represent a much more effective balancing of the competing fundamental interests than the socialization of control over the investment of productive resources proposed by Cohen and Schweikart.

Whether the required dispersal of wealth and capital would be achievable without the implementation of interventionist redistributive and regulatory measures, in addition to the progressive institutions of the market democratic POD, is at this stage an open question. It could turn out that the progressive market democratic institutions of such a society would broaden the distribution of private property sufficiently to secure the fair value of the political liberties, thus rendering any further interventionist measures superfluous. But whether the right to private property can be restricted to the extent that the majority of productive resources are publicly owned and controlled is not an open question: though formal rights of private ownership may be restricted, if this is necessary in order to prevent large concentrations of private economic power from violating the fair value of the political liberties, such rights cannot be eliminated altogether. In the next section, I develop this point in more detail, and I highlight another reason why formal rights of private ownership, though essential to the protection of citizens’ fundamental interests in the pursuit of a conception of the good, may justifiably be restricted.

The Self-Limiting Character of the Right to Private Property

Private Property and the Minimization of Collective Decision-Making

Above I argued that an analysis of Cohen’s ‘structural constraints’ argument helps to highlight the importance of the protection of rights of private ownership of productive resources to the protection of citizens’ fundamental interests in the exercise of rationality through the pursuit of a conception of the good. The priority of substantive opportunity prevents these interests from being sacrificed in order to promote the pursuit of perfectionist values and objectives. The institution of private property is justified, as Gerald Gaus puts it, ‘by stressing the fundamental importance of giving individuals maximum ability to possess domains that suit their aims and projects whatever they may be’ (2012, p. 101). Gaus points out that although classical liberals, unlike many libertarians, have always recognized that there is a considerable role for government, nevertheless,

there is always the problem that, because we do not agree on values, ends, and projects, government decisions typically advance the values of some over those of others. In this way government decision is at best a compromise, at worst a case of mere conflict.

(ibid., p. 107)

We can deal with this problem, Gaus suggests, by recognizing the importance of private property in ‘economizing on collective justification’:

In the public deliberation about political decisions a person has simply one controversial set of values, ends, and projects, which may or may not be reflected in collective decisions; over her property a person’s decisions – based on her controversial values and projects – have weighty publicly recognized authority over others. Thus property is so important … because it allows each a jurisdiction in which his values and ends hold sway and so minimizes appeal to collective choices among those who disagree on the ends of life.

(ibid., p. 107)

As John Gray puts it, the importance of private property is that it decentralizes decision-making and ‘acts as an enabling device whereby rival and possibly incommensurable conceptions of the good may be implemented and realized without any recourse to any collective decision-procedure’ (1989, p. 183). This decentralization of decision-making then reduces to a minimum ‘the decisions on which recourse to collective choice – the political or public choice that is binding on us all – is unavoidable’, and explains why the institution of private property is the system that most effectively allows ‘individuals to use their resources to express their own ideal, whatever this may be’ (ibid., p. 183).

If the institution of private property is justified on the basis of its importance in generating the conditions within which people are able to lead their lives in ways that are consistent with their own values and conceptions of the good, then any rights of ownership that this institution incorporates must be strongly protected. As Gaus again puts it, unless ownership rights are assigned a sufficient weight in relation to other rights and interests:

[Such rights] do not provide a secure basis for living one’s life as one sees fit. To grant property rights, but allow that these are easily overridden by other moral and policy considerations, hardly makes them a crucial tool in living one’s own life in one’s own way.

(2012, pp. 106–107)

Rights of private ownership are protected by the priority of substantive opportunity because the capacity to pursue a conception of the good is part of the fundamental interest in the exercise of moral agency, and such rights therefore cannot be restricted in order to allow the realization of perfectionist objectives, even if these are democratically endorsed.

As we saw in ‘Liberal Socialism and the Right to Private Property’, this importance attached to rights of private ownership does not mean that these rights cannot be restricted if doing so is necessary, in order to strike the correct balance between this right and other rights and liberties that protect citizens’ fundamental interests, such as their interest in free and fair participation in the democratic process. There is, however, another important reason why the right to private property might justifiably be restricted in a liberal society: rights of private ownership are not only limited by other basic rights and liberties like the political liberties; they are also self-limiting. In other words, the effective protection of rights of private ownership for some citizens requires the partial restriction of others’ rights of private ownership: one person’s right to private property must be balanced, not only against other basic rights and liberties, but also against other people’s rights to private property.

This self-limiting character of the right to private property derives from the way in which this right is justified – as an essential institutional condition for the protection of citizens’ fundamental interests in the exercise of free moral agency. If the right to private property is indeed an essential institutional condition for the protection of this fundamental interest, then the substantive opportunities which rights of private ownership confer must be available to all citizens, or to as many as possible. As we have seen, one of the principal advantages of private ownership derives from its role in providing private jurisdictions or domains within which people can make choices based on their own, potentially controversial, values and projects, and within which these choices are assigned a weighty publicly recognized authority over the choices and values of others. This then minimizes the sort of collective public decision-making that is binding on all citizens, and allows the implementation and realization of the widest possible range of incompatible and often incommensurable conceptions of the good.

However, if only a small number of citizens are able to enjoy the substantive opportunities conferred by private ownership – if private jurisdictions or domains are available only to a minority of citizens – then it is not clear that this institution is indeed such an essential condition for the protection of the fundamental interest in free moral agency. In such a situation of extreme scarcity of private domains, perhaps public ownership of productive resources, with the expanded role for collective decision-making procedures that this entails, would be the institution that would more effectively protect citizens’ fundamental interests. It is important, then, that private domains be available to as many citizens as possible, and that those whose domains are the smallest and least valuable nevertheless have the best possible substantive opportunity to pursue their conceptions of the good. In other words, the institution of private property is essential for the protection of the citizens’ fundamental interests in free moral agency and consistent with the values of free and equal citizenship and democratic legitimacy, only if it maximizes the range of reasonable conceptions of the good that can be pursued, as well as the substantive opportunities of all citizens, including the least advantaged, to pursue them.

For this reason, it might turn out to be justifiable and entirely consistent with the priority of substantive opportunity to restrict one person’s rights of private ownership in order to enhance another’s, or to restrict the private ownership rights of one group of citizens in order to enhance those of another. Such a restriction of the right to private property would count as a legitimate balancing of one person’s or one group’s rights with those of another person or group, rather than as an unjust violation of the right to private property that is inconsistent with the priority of substantive opportunity. Any rights of private ownership which are justified on the basis of their importance for the protection of citizens’ fundamental interests in the exercise of free moral agency are therefore more than merely formal rights to whatever assets or holdings one is able to obtain through unregulated market exchange – such rights take the form rather of substantive rights to real opportunities to obtain private ownership and control of holdings of capital and productive resources for even the least advantaged members of society.

An argument for the right to private property that appeals to considerations relating to the fundamental interest in free moral agency constitutes what Jeremy Waldron (1988) has referred to as a ‘General Right-based’ argument. A General Right-based (henceforth: GR-based) argument for the institution of private property makes the claim that

[I]ndividual men and women have a right that such an institution should exist – that the existence of a system of private property fulfils an individual need or serves some individual interest which is considered of sufficient moral importance to generate duties for the society as a whole.

(Waldron, 1988, p. 287)

Waldron contrasts GR-based arguments with what he refers to as ‘Special Right-based’ (SR-based) arguments: a SR-based argument for the right to private property specifies a procedure by which entitlements to resources are established. These entitlements guarantee exclusive control of the relevant resources for those entitled to them. A right to private property derived from an SR-based argument would not amount to a general right to be the owner of private property, but would mean ‘at most a conditional right-to-be-an-owner-if-certain-events-or-transactions-have-takenplace’ (ibid., p. 441).

Unlike a GR-based argument, then, a SR-based argument cannot establish the case for the existence of private property as an institution; only if such an institution already exists, and if certain events or transactions have occurred, can a SR-based argument justify a particular claim to the ownership of a particular holding. It takes a GR-based argument to establish the case for the existence of an institution of private property, before any SR-based arguments can justify particular claims to the ownership of particular holdings. Waldron points out that many of the theories that incorporate a GR-based argument for private property posit some kind of connection between the existence of private ownership and the promotion of individual liberty – the claim being that persons have a general right to private property because being the owner of something is in some sense constitutive of freedom (ibid., p. 294). According to this kind of argument, an institution of private property provides individuals with various rights and powers over material resources which protect certain important human liberties – specifically, the exclusive right to determine what shall be done with a resource, the right to exclude others from the use of a resource, and the power to alienate one’s rights over a resource on whatever terms one thinks appropriate (ibid., p. 294).

As Waldron notes, arguments based on a general right to liberty ‘may be used by those who have private property to rebut attempts to expropriate them or to take the resources that they own into collective ownership’ (ibid., p. 329). However, as he also notes, the substance of many critiques of the institution of private property is that

consistency requires that the same arguments be deployed with equal fervour on behalf of those who have no private property to rebut attempts to perpetuate their propertylessness or to perpetuate the situation in which they have to rely either on collective provision or on the goodwill of property-owners for their material well-being.

(ibid., p. 329)

This is so because in both cases the moral concern is the same:

[P]eople need private property for the development and exercise of their liberty; that is why it is wrong to take all of a person’s private property away from him, and that is why it is wrong that some individuals should have had no private property at all.

(ibid., p. 329)

It follows from this, Waldron argues, that a GR-based argument for private property might have significant distributive implications, perhaps prohibiting ‘tendencies towards the accumulation of enormous holdings, particularly of capital resources, on the one hand, and the accompanying development of long-term propertylessness, on the other’, and perhaps requiring that ‘when these trends become apparent, intervention will be necessary’ (ibid., p. 439). If intervention is for this reason deemed to be necessary, then it is necessary for reasons relating to the very GR-based argument in terms of which the institution of private property is justified, and not for some external, unrelated reason.

It is clear that an argument for the right to private property derived from considerations relating to the fundamental interest in free moral agency is a GR-based argument, and that this gives the right that is thereby justified a self-limiting character, which makes it inherently compatible with regulatory and redistributive policies that enhance the opportunities of the least advantaged members of society to pursue their conceptions of the good, by improving their access to productive resources. If the formal right to the private ownership of whatever one can acquire through unrestricted and unregulated market exchanges is insufficient for the protection of citizens’ fundamental interests in free moral agency, including those of the least advantaged members of society, then justice demands the protection of substantive rights to private property secured through the implementation of interventionist redistributive and regulatory mechanisms, which restrict formal rights of private ownership. Thus, the formal right to private property that secures market freedom can, if necessary, be restricted, in order to secure the social freedom that consists in the maximization of the substantive opportunities of the least advantaged members of society.

However, as I shall argue in Chapter 6, the degree to which justice demands the restriction of market freedom is much more of an open question than the question of the suitability of liberal socialism for a liberal society. Any social liberals who might be prepared to accept that the private ownership of productive resources is an essential condition for the protection of citizens’ fundamental interests in the exercise of free moral agency, and that the LS institutional model should therefore be rejected, will nevertheless take the view that the institution of private property can be justified on this basis, only if the distribution of actual holdings of property is regulated and constrained by progressive taxation and other interventionist mechanisms. On the other hand, any classical liberals who might be prepared to accept that a purely formal right to private property would not fully protect citizens’ fundamental interests in the exercise of free moral agency, will nevertheless take the view that most of the progressive redistributive taxation and regulatory mechanisms characteristic of social democratic institutional models would backfire, impeding productive economic activity and therefore failing effectively to enhance the substantive opportunities of the least advantaged members of society.

This disagreement between classical and social liberals on the issue of the most appropriate institutional arrangements for a liberal society is in part a reflection of the complex nature of the problem of protecting the fundamental interests of citizens by enhancing the substantive opportunities of the least advantaged members of society. In pursuing this overall objective, there are various narrower goals between which an appropriate balance must be struck. One goal is to broaden the distribution of private property so that private ownership is less concentrated and the substantive opportunities generated by private ownership are more diffuse and widely available. Another goal is to increase the overall abundance of material resources, so that there can be more such resources available for distribution among the members of society, and therefore more and better opportunities available to the least advantaged citizens. A third goal, which was discussed in Chapter 4, concerns the degree of control that private ownership of material resources actually generates: if large amounts of material resources can be privately owned by large numbers of people only on the condition that these people can, in practice, exercise only a small degree of control over the resources that they ‘own’, then this will limit the extent to which the overall objective of freedom-through-private-ownership can be achieved.

To the extent that there is tension between the pursuit of these different goals, the overall objective of enhancing the substantive opportunity of the least advantaged members of society is a complex one, and cannot necessarily be achieved through the implementation of redistributive measures designed to broaden the distribution of existing resources: a more indirect approach may turn out to be more effective in achieving this objective. In Chapter 6, I argue that it is plausible to suggest that market democratic institutions would be much more effectively progressive and effective in enhancing the substantive opportunities of the least advantaged members of society than social liberals might typically suppose. I also argue, however, that this is the case only if ‘market democratic’ institutions are understood to be those that secure the unorthodox form of market freedom outlined in Chapter 3, rather than the orthodox form identified in Chapter 1.

In the next section, I develop the idea of real market freedom outlined in Chapter 3. I argue that whether or not significant restrictions of formal rights of private ownership are required in order to satisfy the demands of justice, the rights of private ownership which may or may not be restricted are very different from the formal rights of private ownership assumed by both classical and social liberals: different formal rights of private ownership apply to different kinds of property. I also argue that market freedom can be fully secured for all members of society only if rights of public ownership are protected as effectively as rights of private ownership. I develop these arguments by focusing on the fragmentary nature of the idea of the formal right to private property, and questioning the way in which this right has been specified by both classical and social liberals.

The Fragmentation of Property and the Idea of Quasi-Private Ownership

Splitting the Atom of Ownership

After presenting his account of ‘the economic basis of deliberative democracy’, Cohen then suggests that it might be necessary to rethink the very idea of ‘ownership’ in terms of which the public/private debate has hitherto been conducted. Since the ‘right’ of ownership actually consists of a variety or ‘bundle’ of distinct rights and liberties, each of which can in principle be separated or ‘unbundled’ from the others, it is plausible to suggest that the possibility and potential implications of such ‘unbundling’ should be given serious consideration. Cohen suggests that if we ‘split the atom’ of ownership, we can ‘consider the different ways of distributing the rights that comprise it’, so that ownership is divided among different persons or institutions, or control over the use of a particular holding is separated from the ownership of this holding. We might then have ‘decisions about the use of resources and decisions about the control of investment falling into separate hands’ (Cohen, 1989, p. 49).

Making a similar point slightly differently, Martin O’Neill suggests that ‘full ownership of the means of production need not be a necessary condition for the exercise of some control over how production is to take place’: by unbundling the different rights normally associated with ownership, ‘one could therefore allow that a right of participation in workplace decision-making could be enacted without the need to reject private ownership of the means of production altogether’ (2008, p. 39). And as Waldron points out, the rights and powers that are promoted and protected by the institution of private property are separable in thought and in fact: we can, for example, imagine a conception of private property ‘in which individuals would be assigned an exclusive right to determine what use should be made of particular resources without their necessarily having the power to transfer that right, on their own initiative, to anyone else’ (1988, p. 432); alternatively, since there are several powers of transfer to be considered (gift, sale and purchase, abandonment, bequest, inheritance, and so on), it is possible that a conception of private property is imaginable which includes some of these powers but not others (ibid., p. 435).

However, as we have seen in the section ‘Liberal Socialism and the Right to Private Property’, the separation of ownership rights in the manner suggested by Cohen, whereby decisions about the use of resources and decisions about the control of investment are made by different agents, is highly unlikely to be feasible in practice, or to enhance citizens’ substantive opportunities, since one set of decisions will inevitably conflict with and impose constraints on the other set. And while the idea of a distinction between ‘full liberal ownership’ and some more limited conception of private ownership, as suggested by O’Neill and by Waldron, may turn out to be of considerable interest and importance, the precise nature of this more limited conception has still to be specified. There are considerations which might mitigate against separating powers of transfer from powers of use and exclusion: for example, the removal of the power to transfer one’s property to one’s chosen heirs might reduce one’s inclination to invest time, energy, and capital productively – one might instead simply increase one’s consumption rather than accumulate capital for future investment. In order to address the question of how the ‘atom of ownership’ might be split in a way that does not undermine the value of the institution of private property in enhancing citizens’ substantive opportunities, and in order to explain why this ‘unbundling’ of the right to private property might be essential to the protection of citizens’ fundamental interests in free moral agency, I shall now look in a little more detail at the idea of private property and the specific rights of ownership that together constitute the idea of ‘full liberal ownership’.

Drawing on the account provided by A. M. Honore (1961), we can list the incidents of ownership that together constitute ‘full liberal ownership’ as follows:

1

The right to possess – to have exclusive physical control of a thing.

2

The right to use – to have an exclusive and open-ended capacity to personally use the thing.

3

The right to manage – to be able to decide who is allowed to use the thing and how they may do so.

4

The right to the income – to the fruits, rents and profits arising from one’s possession, use and management of the thing.

5

The right to the capital – to consume, waste or destroy the thing, or parts of it.

6

The right to security – to have immunity from others being able to take ownership of (expropriating) the thing.

7

The incident of transmissibility – to transfer the entitlements of ownership to another person (that is, to alienate or sell the thing).

8

The incident of absence of term – to be entitled to the endurance of the entitlement over time.

9

Liability to execution – allowing that the ownership of the thing may be dissolved or transferred in case of debt or insolvency.

10

Residuary character – ensuring that after everyone else’s entitlements to the thing finish (when a lease runs out, for example), the ownership returns to vest in the owner.

If a person holds all of these rights, liberties, and powers over some item of property, X, in an unlimited way, then this person is the full owner of X. But as Gaus points out, in modern economically advanced societies, many of these rights, liberties, and powers will often be fragmented, divided up in complex ways among many different parties. Suppose, for example, that X is a house. In this case, a person:

may sell his right to live in the house (rent it), put it in trust (in which case the trustee does not have the right to use it uneconomically), sign over to a historic commission the right to change the exterior, agree to a covenant with one’s neighbours about acceptable exterior colors, and agree not to sell it to parties not approved by one’s neighborhood association. On the other hand there may be a law that does not allow you to refuse transfer on the basis of race; it may be mortgaged, in which case it may not be able to be taken in payment of debt, and one may not have the right to destroy the house. If there are zoning laws there are many uses that are precluded; if it is used as a business, it may be illegal to exclude some persons on the grounds of race or ethnic origin. If there are building codes, many changes may be illegal. And many of these dispersions of rights may occur at the same time.

(Gaus, 2012, pp. 95–96)

In this case, as in many others, it might seem far from clear who the ‘owner’ of the property actually is, or even if there is any one particular ‘owner’. The title of ‘owner’ might then be thought to be merely honorific, of no real significance, the more important question being who holds which particular rights, powers, and liberties (ibid., p. 96).

In addressing this issue of the fragmentation of the right of private ownership Gaus is endorsing, at least partially, the ‘disintegration of property’ thesis proposed by Thomas Grey (1980), according to which the modern ‘bundle of rights’ understanding of private property has rendered obsolete the idea of unified unqualified ownership which characterized the thought of early classical liberal thinkers. When the owner of X begins to cede various rights over it, such as the right to use for this purpose tomorrow, for that purpose next year, and so on, then at what point, Grey asks, ‘Does he cease to be the owner, and who then owns the thing?’ (ibid., p. 70). It does not seem to matter, he suggests, whether we say that each one of many right holders owns X to the extent of the right, or that no one owns X – nothing significant turns on our answer, the issue being merely one of terminology (ibid., p. 70). The very idea that property is primarily about rights over things or objects has in Grey’s view become anachronistic, as we see when we consider common forms of wealth such as shares of stock in corporations, bonds, various kinds of commercial paper, bank accounts, insurance policies – not to mention more arcane intangibles such as trademarks, patents, copyrights, franchises, and business goodwill (ibid., p. 70). Grey draws the radical conclusion that ‘the substitution of a bundle-of-rights for a thing-ownership conception of property has the ultimate consequence that property ceases to be an important category in legal and political theory’ (ibid., p. 81).

Much of this analysis Gaus accepts, arguing that the fragmentation of property is real and not easily overcome, and that political philosophers ‘for the most part have not successfully come to terms with the implications of the modern concept of property’ (2012, 95). But Gaus rejects Grey’s radical conclusion that the status of property no longer matters to political theory, arguing that questions of the proper strength and scope of property rights remain at the core of political philosophy. Whatever elements of the bundle of rights they might consist of, property rights are strong (though certainly not necessarily absolute) when they can justifiably be overridden only by ‘weighty moral reason, or reasons of great and pressing social utility’ (ibid., p. 105). And such rights are extensive when, no matter how many separate rights, powers, and liberties are ‘unbundled’ from each other, all or most of these incidents of the property rights bundle are held by some non-governmental agent or agencies. Thus, even when the incidents over X are highly fragmented, held by different individuals and corporations, ‘insofar as none are controlled by public decision making, we would still have a regime of extensive private property rights’ (ibid., p. 106).

As we have seen, Gaus thinks that when questions concerning the proper strength and scope of property rights are addressed, it turns out that the protection of a set of strong and extensive rights of private ownership (though not necessarily the strongest and most extensive possible system of such rights) is justified on the basis that this regime of relatively strong and extensive private property rights is necessary for the protection of citizens’ fundamental interests in living their own lives in their own different ways, according to their own values, ideals, and conceptions of the good. A society characterized by the protection of relatively strong and extensive rights of private ownership that apply in respect of a broad range of objects, including land and natural resources, is what I would refer to as an orthodox market democratic society, in which orthodox market freedom is relatively strongly protected. What I would like to do in the remainder of this chapter is to differentiate these familiar ideas of orthodox market democracy and market freedom from the less familiar unorthodox conceptions of these ideas. I shall do so by focusing, not so much on questions concerning the strength of the rights, powers, and liberties that constitute the bundle of ownership rights, but rather on the question of the range of objects, things, or areas over which rights, powers, and liberties of private ownership may be more or less extensive.

During his discussion of a supposedly ‘ideal’ or ‘pure’ form of capitalism characterized by the protection of strong and extensive rights of private ownership, Gaus notes that though John Stuart Mill endorsed something like full property rights over what can be owned, he also endorsed significant limitations on what should be owned: Mill thought that since land is not made by humans, but is rather ‘the original inheritance of the whole species’, it follows that the principal justification of private property – that people deserve the fruits of their labour – does not apply to land (Gaus, 2010, p. 79). A ‘pure’ form of capitalism, as Gaus sees it, is characterized by maximally feasible property rights, not only along the dimension of the extent and strength of the bundle of rights that one may have over X, but also along the dimension that concerns the range of objects over which one can have property rights (ibid., p. 77). The ‘capitalist ideal’, Gaus asserts, ‘is to extend as far as possible the range of things that are privately owned. Of course under the capitalist ideal, consumer and productive goods are privately owned. So too are natural resources’ (ibid., p. 77). The most fervent defenders of capitalism, Gaus suggests, are those who strongly support the widest possible extension of the range of things that are privately owned, on the basis that this is the system that will most effectively increase the range of options available to the citizens of society. To the extent that one endorses the restriction of the range of things that can be privately owned, one is approving only a modified form of capitalism, or even, if one endorses significant restrictions on the range of things that can be privately owned, an entirely non-capitalist economic system.

Fervent defenders of capitalism who strongly support the widest possible extension of the range of things that can be privately owned are orthodox market democrats, and many might wish to defend the ‘pure’ form of capitalism that they endorse on the basis that this is the economic system that is likely to be most effective in improving the substantive opportunities of the least advantaged members of society to pursue their conceptions of the good. What I would like to suggest is that there is another form of capitalism which is characterized by the restriction, in a very particular way, of the range of things that can be fully privately owned. This form of capitalism, I shall argue, turns out to be more, rather than less, ‘ideal’ and ‘pure’ than the form of capitalism identified by Gaus. In societies that are capitalist in this sense, land and other natural resources (fossil fuel deposits, precious metals and other minerals, the electromagnetic spectrum, and so on – henceforth referred to simply as ‘land’) can be owned as what I shall call ‘quasi-private property’, but cannot be fully privately owned. In an ideal capitalist society, citizens who ‘own’ land do not enjoy full liberal ownership of their land because the rights, powers, and liberties that they enjoy in respect of their property are not granted and protected unconditionally: citizens’ rights of private ownership in respect of land are protected by the force of law on the condition that each private owner contributes the full rental value of the holdings that they own to the relevant public political authority, which then controls and invests the revenue thus generated on behalf of all members of society. For reasons highlighted later in this section, quasi-private landowners’ contributions of land rental value to the public authority must take the form, not of a single, one-off payment, but rather of an ongoing series of regular payments which reflect the ongoing generation of rental value. Thus, the rental value of land is socialized, rather than privately appropriated.

The form of ownership that this conditionality entails is different in several important respects from both fully private and fully public forms of ownership. The condition of rent socialization means that each of the incidents of ownership that together constitute full liberal ownership is qualified or ‘conditioned’ in some way, some to a higher degree than others. The right to the income from a plot of land, for example, is very highly qualified by the conditionality that characterizes quasi-private ownership: in particular, the quasi-private owner of a plot of land has no claim to the financial benefits of forgoing her own use of this plot and letting someone else use it instead; nor does the quasi-private landowner have a claim to value deriving from any natural and social advantages which may be attached to the site that they own – advantages which make this site more potentially productive than the least productive sites in use (thereby generating its rental value). Of course, the right to income is not completely nullified, since, when inputs of labour and capital are applied by quasi-private landowners on the sites that they own, any returns to these inputs which exceed the rental value of these sites are retained by the landowners in question. In these cases, however, the ‘right to income’ relates to income generated by inputs of labour and capital which happen to be applied on a site owned by the providers of these inputs; it does not relate to the income (or marginal revenue product) attributable to the land itself.

Consider also the rights of quasi-private landowners to use their land as they see fit. If land is held as quasi-private property, then although the person or agent who owns it has the right to determine how (or whether) it will be used, the range of options in respect of use that are available to this agent may be significantly limited by the restriction of the right to income entailed by the conditionality of quasi-private landownership. The quasi-private owner of a valuable site can choose to hold her site out of production or use it relatively inefficiently or less productively only if she has some means by which the rental value of her site – which must be paid to the public authority – can be funded from some source other than the potential productivity of her land. Similarly, the right to manage land, to be able to decide who is allowed to use it and how they may do so, is limited by the conditionality of quasi-private rights of ownership. Other rights, such as those of transmissibility and absence of term, are also affected: a quasi-private landowner can transfer her land to a person of her choice only if this person is willing and able to continue to make the payments of rent upon which the legal protection of quasi-private rights of ownership is conditional; and a quasi-private landowner’s entitlements in respect of the site that she owns will endure only for as long as she continues to make the required payments of rent to the public authority.

There can be no question, then, that quasi-private property is very different from fully private property, since most, if not all, of the rights of quasi-private ownership are qualified or limited in some significant way by the strong conditionality of these rights. It is also important, however, to highlight the considerable and highly significant differences between quasi-private property and public property. The conditionality of the rights of quasi-private landownership in no way entails the socialization or nationalization of land itself: only the rental value of land is socialized and appropriated by the relevant public authority as public revenue. The rights of use, transmissibility, and absence of term which are qualified in respect of quasi-privately owned land are non-existent in respect of nationalized, publicly owned land. Ultimately, the power to specify precisely how publicly owned land is to be used, to determine what is to be produced and in what quantities, who exactly will be permitted to use the land or prevented from using it, and so on, is held by the public authority that owns the land.

It is true, of course, that the public ownership of land does not necessarily entail such restrictions of the freedom of individuals to use land as they see fit, for an unlimited period of time. Publicly owned land might be distributed through the sale of long-term leases to which minimal conditions are attached. The point, however, is that there is nothing in the nature of public ownership which guarantees the rights of use, transmissibility, and absence of term – the free use of land. Any such rights which are granted to an agent in respect of publicly owned land are temporary, subject to subsequent termination or transference to some other agent. Land in respect of which the state guarantees permanently to protect the rights of use, transmissibility, and absence of term for some agent, cannot be referred to as publicly owned land. In contrast, the right to use land that is quasi-privately owned is held by the quasi-private owner for indefinite duration, and may be transferred at any time to any person chosen by the quasi-private owner – provided, of course, that payments equal to the rental value of this land continue to be paid to the public authority. Thus, while restrictions of the incidents of ownership beyond those entailed by the condition of the ongoing payment of rent to the public authority are necessarily incompatible with quasi-private ownership, the same cannot be said in respect of public ownership. Although the rights of use, transmissibility, and absence of term that apply in respect of quasi-privately owned land are qualified by the conditionality of these rights, quasi-private rights of ownership nevertheless provide a significant range of choice for quasi-private owners. The users of publicly owned land, by contrast, might find their range of options much more heavily restricted.

It is clear, then, that the category of quasi-private ownership is different in several significant respects from the categories of public ownership and fully private ownership. It is also clear that a society in which land is predominantly quasi-privately owned would be very different from one in which land is predominantly privately owned, or predominantly publicly owned. But how can the idea of quasi-private ownership be associated with the protection of market freedom and the ideal of capitalism? In addressing this question we can refer back to the main line of argument developed in Chapter 3 – that the socialization of the rental value of land is essential to the full and effective protection of rights of private ownership which apply in respect of privately created property. Central to this argument, of course, is the idea that the rental value of land is not privately created. As we saw in Chapter 3, although a small proportion of the rental value of certain sites might be attributable to labour performed or capital invested by the owners of these sites, the rental value of land is largely socially created, attributable to the effects of population growth, agglomeration, technological innovation, and investment in public services and infrastructure. And although the socially created rental value of land cannot be attributed equally to all citizens, the private appropriation of this value cannot be justified on this basis, since even if the specific individuals to whom a substantial portion of this value is attributable could be identified, this value is almost certain to be appropriated by some other agent, if it is not socialized.

If the socially created rental value of land is privately appropriated rather than socialized, then the freedom of non-landowning citizens to pursue their conceptions of the good by creating or otherwise acquiring private property is significantly diminished, since landowners are empowered and incentivized to significantly reduce the amount of land available for commercial and residential utilization. Non-landowning workers are thus forced to work for the least acceptable wage, rather than enjoying the freedom to appropriate the value of the output they are able to produce on rent-free marginal land. Since there is less land available for productive purposes, those sites which are available are used more intensively than would otherwise be the case, and the product attributable to land is higher, while that attributable to labour is lower. The result of this is that rent is higher as a proportion of total output, and wages lower.

The impact of taxation imposed on production and employment – a certain amount of which is unavoidable if rent is privately appropriated – must then be taken into consideration. Any such taxation which is borne by workers will further reduce what is already a low general level of wages, with non-landowning tax payers in effect forced to pay twice for the cost of government – once through their tax payments, and once through their payments of rent to private landlords. And whether such taxation is borne ultimately by workers, producers, or consumers, its inevitable effect is to distort and suppress economic activity, particularly at the intensive and extensive margins of production, resulting in deadweight losses, unemployment, and reduced output. A portion of the privately created property which non-landowning workers are able to acquire is thus appropriated in order to subsidize the landowners’ private appropriation of what would otherwise have constituted the primary source of public revenue.

Thus, if the rental value of land is privately appropriated rather than socialized, the freedom of non-landowning citizens to pursue their conceptions of the good by creating or otherwise acquiring holdings of private property is significantly restricted, since both the proportion of total output going to non-landowning workers and capitalists, and the size of the output which can in any case be produced, are heavily restricted. By contrast, the socialization of rent ensures that all citizens, both landowners and non-landowners, are free to pursue their conceptions of the good by creating private property or acquiring it freely (perhaps indirectly) from someone who has created it. The conditionality of the rights of quasi-private ownership, which apply in respect of land, is therefore essential to the full and effective protection of market freedom because although the rights of use, transmissibility, and absence of term are highly qualified insofar as they apply to non-privately created property, this qualification is essential to, and is more than compensated by, the effective protection of the rights of private ownership which apply in respect of privately created property.

Contra Gaus, then, under the ‘pure’ capitalist ideal, natural resources are quasi-privately rather than fully privately owned. This allows for maximally feasible property rights along the dimension of the extent and strength of the bundle of rights that one may have over privately created property – real market freedom. If X is privately created property, and if A has created X or has legitimately acquired X from B (the legitimate owner of X), then A enjoys market freedom to the extent that A’s extensive rights of ownership over X are strongly protected, remaining unrestricted by taxation, contractual regulations, use limitations, and so on. If X is non-privately created property, and if A has appropriated X or legitimately acquired X from B, then A enjoys market freedom to the extent that A’s extensive (though conditioned) rights of quasi-private ownership in respect of X are strongly protected, restricted no further than the restrictions entailed by the conditionality of A’s rights of ownership in respect of X. Because A enjoys only rights of quasi-private ownership in respect of non-privately created property, A cannot appropriate or acquire such property as a zero-sum strategy to enhance her opportunities to obtain privately created property at the expense of her fellow citizens’ diminished opportunities to obtain such property. Instead, A’s appropriation or acquisition of non-privately created property is a positive-sum action which will enhance all citizens’ opportunities to obtain privately created property in respect of which rights of private ownership are as strong and as extensive as is feasible.

The prioritization of real market freedom therefore entails the protection of citizens’ rights of public ownership – which apply in respect of the socially created rental value of land – as much as it entails the protection of rights of private ownership which apply in respect of privately created property. And since the rental value of land is constantly being created, by continually emerging as well as currently existing generations, the rights of public ownership in respect of this value can never be transferred permanently to a private agent. Rather, the rental value that is constantly being created must be paid regularly to the public authority by the quasi-private owners of the land. Thus, the prioritization of market freedom is not compatible with full private property in land, nor with public ownership of land, but only with quasi-private property in land.

To assume that ‘the right of use without the right of income is sufficient to live one’s own life in one’s own way’ is, Gaus argues, to unacceptably constrain ‘the ability of many to lead lives in which they can fully realize their fundamental values’ (2012, p. 100). Such an assumption excludes a broad range of ‘personal ideals’ about what is worth doing in life, including entrepreneurial ideals of trade, investment, commerce, organization, personal initiative, and innovation in production (ibid., p. 100). If there is any substance to this view (and I believe that there is), then it is only correct insofar as the ‘right of income’ to which Gaus refers extends only to income attributable to value generated by inputs of labour, capital, and entrepreneurial services, and excludes income derived from the rental value of the land to which labour and capital are applied in productive economic activity. If the ‘right of income’ is defined broadly to include income attributable to the rental value of land, then it is a mistake to assume that the protection of this right will enhance the opportunities of the majority of citizens to lead their lives as they see fit. It is precisely the misidentification of this right of income as the right to the full value of whatever can be produced on a given unit of land – irrespective of the proportion of the output attributable to the land itself – that unacceptably constrains the ability of many to lead lives in which they can fully realize their fundamental values.

However, it does not necessarily follow from this that citizens’ fundamental interests in the exercise of free moral agency would be adequately protected in an ideal capitalist society. It cannot be assumed that the absolute prioritization of real market freedom is compatible with the values of democratic legitimacy and free and equal citizenship. The question of the extent to which market freedom must be restricted in order to protect citizens’ fundamental interests in free moral agency must still be addressed. In Chapter 6, I address this question, and I argue that although it seems evident that market freedom must be restricted to a certain extent if the substantive opportunities and capabilities of the least advantaged members of society are to be maximized, the prioritization of substantive opportunity may reasonably be expected to require far fewer and less severe restrictions of market freedom than social liberals would typically suppose. This, of course, is because the protection of real market freedom is likely to be much more effective than the protection of orthodox ‘faux’ market freedom in striking a suitable balance between the three goals of increasing the abundance of privately created property, broadening the distribution of such property, and enhancing the degree of control that citizens are able to exercise over their holdings. For this reason, the institution of quasi-private property in land is essential to the maximization both of the range of conceptions of the good that the least advantaged members of a just liberal society may choose to pursue, and of their substantive opportunities to pursue them. Thus, as well as being a core market democratic institution which is essential to the protection of market freedom, the socialization of rent is also a highly progressive institution which is an essential feature of a just liberal society in which the values of democratic legitimacy and of free and equal citizenship are fully satisfied. Such a society may appropriately be referred to as a market democratic property-owning democracy.

Notes

1

A version of the psychological support argument is suggested by Rawls, when he poses the question whether in a well-ordered society worker-managed firms should be subsidized on the grounds that they may be ‘more likely to encourage the democratic political virtues needed for a constitutional regime to endure’ (2001, p. 178). For a sceptical view, see Greenberg (1986).

2

Of course, one might also suggest that to prevent people from working for a wage in a hierarchical non-democratic firm would harm their fundamental interests by greatly restricting their substantive opportunities. As Robert Taylor argues:

There are numerous fundamental interests at stake in preserving ‘wagelabor,’ i.e., non-cooperative workplaces, including our interest in pursuing a form of life that is more focused on consumption, leisure, and alternative forms of self-development than on achieving collective autonomy in every sphere; the demands of self-management (be it direct or indirect, as when workers select and then monitor, discipline, and at times replace managers) will invariably crowd out these activities to a greater or lesser extent, and many will discover that the required sacrifices do not best advance their preferred way of life.

(2014, p. 456)

3

There is, of course, a wider set of important issues concerning the potential impact of legally enforced workplace democracy on economic efficiency and productivity. This is a complex subject on which there is wide disagreement among commentators, with some arguing that workplace democracy would impact negatively on efficiency and productivity (Miller, 1989, pp. 85–90; Taylor, 2014, pp. 439–440; Thomas, 2016, pp. 391–392), and others arguing that the impact would be more likely to be positive (Schweikart, 2002, p. 63). I shall not take a position on this question.

4

This is precisely why Rawls was reluctant to identify a well-ordered society as either a community or an association: in his view, any sort of political society is a ‘complete and closed social system’, which has ‘no final ends and aims in the way that persons or associations do’ (1996, p. 42, n. 44). Citizens cooperate in a well-ordered society in order ‘to assure one another political justice’, while people cooperate as members of an association in order ‘to realize ends falling under their different comprehensive conceptions of the good’ and ‘to achieve whatever it is that moved them to join the association, which will vary from one association to another’ (ibid., p. 42, n. 44).

5

It is perhaps worth noting here that Rawls himself would not endorse the view that public ownership of the means of production is essential for a fair democratic process. The ‘fair value’ of the political liberties would, in his view, be secured partly by way of constitutional safeguards which would ensure that political parties are kept ‘independent of large concentrations of private economic and social power’ (ibid., p. 328).

6

Rawls’s ‘Aristotelian Principle’ states that ‘other things equal, human beings enjoy the exercise of their realized capacities (their innate and trained abilities) and their enjoyment increases the more the capacity is realized, or the greater its complexity’ (Rawls, 1999 [1971], p. 374).

References

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Cohen J. 2003, ‘For a Democratic Society’. In Freeman S. (ed.) The Cambridge Companion to Rawls. Cambridge: Cambridge University Press, pp. 86–113.

Dahl R. 1985, A Preface to Economic Democracy. Berkeley, CA: University of California Press.

Di Quattro A. 1983, ‘Rawls and Left Criticism’. Political Theory, Vol. 11, No. 1, 53–78.

Freeman S. 2007a, Rawls. London: Routledge.

Freeman S. 2007b, Justice and the Social Contract: Essays on Rawlsian Political Philosophy. Oxford: Oxford University Press.

Gaus G. 2010, ‘The Idea and Ideal of Capitalism’. In Brenkert G. (ed.) The Oxford Handbook of Business Ethics. Oxford: Oxford University Press, pp. 73–99.

Gaus G. 2012, ‘Property’. In Estlund D. (ed.) The Oxford Handbook of Political Philosophy. Oxford: Oxford University Press, pp. 93–112.

Gray J. 1989, Liberalisms: Essays in Political Philosophy. London: Routledge.

Greenberg E. S. 1986, Workplace Democracy: The Political Effects of Participation. Ithaca, NY: Cornell University Press.

Grey T. 1980, ‘The Disintegration of Property’. Nomos, Vol. 22, 69–85.

Gutmann A. 2003, ‘Rawls on the Relationship Between Liberalism and Democracy’. In Freeman S. (ed.) The Cambridge Companion to Rawls. Cambridge: Cambridge University Press, pp. 168–199.

Honore A. M. 1961, ‘Ownership’, In Guest A. (ed.) Oxford Essays in Jurisprudence. New York: Oxford University Press, pp. 107–147.

Hsieh N. 2008, ‘Survey Article: Justice in Production’. The Journal of Political Philosophy, Vol. 16, No. 1, 72–100.

Krouse R. and McPherson M. 1988, ‘Capitalism, Property-Owning Democracy, and the Welfare State’. In Gutmann A. (ed.) Democracy and the Welfare State. Princeton, NJ: Princeton University Press, pp. 79–106.

Miller D. 1989, Market, State and Community: Theoretical Foundations of Market Socialism. Oxford: Clarendon Press.

O’Neill M. 2008, ‘Three Rawlsian Routes Towards Economic Democracy’. Revue de Philosophie Economique, Vol. 8, 29–55.

O’Neill M. 2009, ‘Liberty, Equality and Property-Owning Democracy’. Journal of Social Philosophy, Vol. 40, No. 3, 379–396.

Rawls J. 1996, Political Liberalism. New York: Columbia University Press.

Rawls J. 1999 [1971], A Theory of Justice (rev. edn). Cambridge, MA: Harvard University Press.

Rawls J. 2001, Justice as Fairness: A Restatement. Cambridge, MA: Harvard University Press.

Rawls J. 2008, Lectures on the History of Political Philosophy. Cambridge, MA: Harvard University Press.

Schweikart D. 2002, After Capitalism. Lanham, MD: Rowman & Littlefield.

Schweikart D. 2012, ‘Property-Owning Democracy or Economic Democracy?’. In O’Neill M. and Williamson T. (eds) Property-Owning Democracy: Rawls and Beyond. Oxford: Wiley-Blackwell, pp. 201–222.

Taylor R. 2014, ‘Illiberal Socialism’. Social Theory and Practice, Vol. 40, No. 3, 433–460.

Thomas A. 2016, Republic of Equals: Predistribution and Property-Owning Democracy. New York: Oxford University Press.

Tomasi J. 2012, Free Market Fairness. Princeton, NJ: Princeton University Press.

Waldron J. 1988, The Right to Private Property. Oxford: Clarendon Press.

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Young I. M. 1979, ‘Self-determination as a Principle of Justice’. The Philosophical Forum, Vol. 11, 30–46.

6 The Market Democratic Property-Owning Democracy

Introduction

In this chapter, I present the geo-liberal case for the socialization of rent as an essential market democratic institutional feature of a liberal society of free and equal citizens, and I explain how this institution can form the basis of a market democratic version of the property-owning democracy. I begin by highlighting the main problems, primarily concerning economic inefficiency and extreme socio-economic inequality, which undermine the model of orthodox laissez-faire capitalism as this has been presented by its leading proponents. I argue that the most problematic aspects of this form of socio-economic organization are generated by, or at least greatly exacerbated by, the orthodox market democratic institution of the private appropriation of rent. The socialization of rent, I argue, would yield an unorthodox laissez-faire model of capitalism – the market democratic property-owning democracy – which would be both far more efficient and far less unequal than orthodox laissez-faire capitalism.

I then examine the potential effectiveness of a range of interventionist redistributive institutions as solutions to the problems associated with orthodox laissez-faire capitalism. I argue that none of these institutions would, if implemented against the background institutional context of the substantial private appropriation of rent, solve these problems as effectively as their proponents have suggested. What this means, I argue, is that the socialization of rent is an essential progressive institution for a just liberal society, which can only be supplemented, rather than replaced, by social democratic interventionist institutions. The question of whether and to what extent progressive interventionist mechanisms should be implemented in addition to the rental value of land, I leave more or less open. The answer to this more delicate question, I suggest, will vary from one societal context to another, and will be determined in part by the contrasting cultural and socio-economic traditions, historical experience, and sociological circumstances of each society.

After presenting the case for a shift in the burden of taxation on to the rental value of land I discuss a range of issues relating to the practical implementation of this institutional reform. I argue that while there are numerous problems which are likely to arise both during the process of transition to a land value taxation-based system, and as a result of its ongoing implementation, none of these problems will be insurmountable or sufficiently severe to provide any justification for not proceeding with the implementation process. The potential advantages to be gained from shifting the burden of taxation on to the rental value of land are sufficiently significant to make it incumbent on responsible political leaders to devise suitable solutions to the problems which are likely to arise.

Orthodox Laissez-Faire Capitalism versus the Market Democratic Property-Owning Democracy

Orthodox and Unorthodox Market Democracy

As we saw in Chapter 4, Tomasi argues that since justice as (free market) fairness requires that we seek to maximize the wealth personally controlled by the lowest paid workers, if follows that the most appropriate institutional scheme for a society of free and equal citizens is an ‘enthusiastically capitalistic’ market democratic system which allows for only a relatively minor role for state regulation and intervention in the operation of free markets (2012, pp. 236–237). Tomasi identifies two such institutional models, which he calls ‘democratic limited government’ and ‘democratic laissez-faire’ (ibid., pp. 116–118). The institutions of democratic limited government resemble those advocated by Friedrich Hayek (1982 [1973]) and Milton Friedman (1962), and include tax-funded support for education (by means of a tax credit, safety-net voucher, or universal voucher), a social safety-net in the form of a minimum income, and perhaps even grants to be spent on health insurance (Tomasi, 2012, p. 117). Absent from a democratic limited government society would be the steeply progressive consumption taxes and taxes on inheritances and gifts, as well as the heavy regulation of workplace conditions and practices characteristic of the social democratic institutional models endorsed by social liberals (ibid., pp. 229–230).

Central to Tomasi’s limited government model is the idea that the protection of (orthodox) market freedom – or what Tomasi refers to as ‘thick economic liberty’ – is the most effective (though not the only) way in which to maximize the opportunities of citizens to pursue their conceptions of the good, thereby protecting their fundamental interests in the exercise of free moral agency. Although Tomasi (ibid., pp. 94–95) and other neoclassical liberals (Brennan and Tomasi, 2012; Gaus, 2010) accept that it might sometimes be necessary to place minor restrictions on market freedom – for example, by implementing a ‘negative income tax’ or by providing tax-funded support for education and healthcare – such interference and intervention must, in their view, be far less extensive than the level of intervention typically endorsed by social liberals. The least advantaged members of society, they argue, would be worse off if a well-intentioned social democratic government were to impose higher rates of redistributive taxation or heavier regulation on production and employment, in addition to minimal limited government restrictions of private economic liberty (Brennan, 2007).

The institutions of Tomasi’s ‘democratic laissez-faire’ model would be even more minimally interventionist and lightly regulative than those of his limited government model, with the imposition of compulsory taxation permitted for only the most minimal of ‘safety-net’ welfare benefits, in addition to the state provision of law enforcement, justice, and national defence agencies, as well as certain kinds of infrastructure such as roads, bridges, drainage, and sewage systems. Unlike democratic limited government, democratic laissez-faire allows for no progressive redistributive taxation, and only the lightest regulation of economic activity. In such a society, the only welfare benefits are minimal ‘safety-net’ payments which are provided in situations of extreme need or emergency, usually in the form of vouchers, and always of a temporary nature, strictly conditional on willingness to (re)enter the labour market (Tomasi, 2012, p. 116). The existence of socio-economic inequality and relative (or even absolute) poverty in such a society is justified at least partly on the basis that any less stringent protection of (orthodox) market freedom would in the long run result in even higher levels of poverty, thereby reducing the opportunities and prospects of the least advantaged members of society.

In stark contrast to the two market democratic models outlined by Tomasi, we have what I shall refer to as the market democratic propertyowning democracy (MDPOD). The central institutional feature of the MDPOD is of course the institution of quasi-private property in land, which is institutionalized through the socialization of the rental value of land. But the MDPOD may be characterized as more or less radically market democratic, depending on the type of institutional model with which it is being contrasted. Thus, I shall assume initially that with the exception of the institution of quasi-private property in land, the MDPOD is identical in all other essential respects to Tomasi’s laissez-faire model, since this is the model with which I would like first to compare it. In the laissez-faire MDPOD, there would therefore be no interventionist redistributive or regulatory mechanisms designed to transfer income and wealth from more to less advantaged citizens, and no compulsory social insurance programmes designed to spread risk across citizens’ individual life-cycles. There would, however, be minimal safety-net welfare benefits for those temporarily unable to provide for their own basic needs, and more generous assistance for those permanently unable to support themselves as a result of disability or severe ill health.

A proponent of the laissez-faire MDPOD model would accept the social liberal contention that poverty and extreme socio-economic inequality would be major problems in any society organized along the lines of Tomasi’s laissez-faire institutional model. But the proponent of the laissez-faire MDPOD would not accept the typical social liberal explanation of the origins of these problems, or the social liberal assessment of the way in which such problems would most effectively be solved. From the geo-liberal perspective on which the case for the MDPOD is constructed, it is important to recognize that the primary socio-economic conflict within contemporary liberal societies is not any apparent conflict between labour and capital, but rather the conflict between labour and capital, on the one side, and land, on the other. From this perspective, the problems of poverty and extreme inequality that undermine Tomasi’s preferred market democratic models are generated primarily by the institution of full private property in land, rather than by the strong protection of the rights of private ownership which reply in respect of privately created property. This, of course, is not to say that there is no conflict in contemporary liberal societies between the interests of capital and those of labour, or that there would be no such conflict in a society in which the rental value of land is socialized rather than privately appropriated. However, the geo-liberal argument developed in this and the next section is that the conflict between labour and capital is greatly exacerbated by the private appropriation of rent, and would be much less intense and one-sided were rent socialized.

Rather than relying on the imposition of redistributive taxation and regulation in order to break up the large accumulations of privately created property that are the inevitable result of the private appropriation of rent, the laissez-faire MDPOD would instead secure a fairer and more equitable predistribution of public property – the socially created rental value of land. In this way the laissez-faire MDPOD would protect the fundamental interests of citizens in the exercise of free moral agency by enhancing the protection of market freedom. As we will see in the next section, proponents of the socialization of rent need not reject the implementation of redistributive mechanisms in addition to the implementation of this core market democratic institution. But the proponents of the laissez-faire MDPOD would argue that any such additional progressive measures would be counter-productive, restricting the substantive opportunities of the least advantaged members of society and thereby failing to protect their fundamental interests. On the laissez-faire MDPOD view, then, the socialization of rent would break the power of landed interests, and this in turn would transform the relationship between labour and capital into one of mutual benefit rather than the domination of one over the other, thus rendering any further progressive institutional mechanisms unnecessary or perhaps even counter-productive.

As we saw in Chapter 5, the socialization of rent would make the rights of private ownership which apply in respect of land strongly conditional, and this would make these rights in some ways more restrictive than rights of full private ownership. How, then, would the proponent of the laissez-faire MDPOD argue that this model is more appropriate for a liberal society of free and equal citizens than Tomasi’s orthodox market democratic model? In addressing this question, it is important to separate issues relating to the ongoing impact of a high rate of land value taxation (LVT) from issues relating to the process of transition from full private property to quasi-private property in land. The latter will be discussed in the section, ‘Practical Implementation’. The problems relating to the ongoing impact of LVT, once the burden of taxation has been shifted from labour and capital and on to the rental value of land, are arguably more serious and more difficult to resolve than those relating to the process of transition, turning on a more complex and delicate balance of considerations, any discussion of which will necessarily be somewhat speculative and tentative in its conclusions.

I shall argue, however, that when the probable opportunity-restricting effects of the institution of quasi-private property in land are contrasted with the probable opportunity-restricting effects of the institution of full private property in land, it is plausible to suggest that the former will be far less significant, and far less objectionable, than the latter. The principal reason for this is that an orthodox laissez-faire society in which the rental value of land is privately appropriated would almost certainly be characterized by a combination of gross inefficiency and extreme socio-economic inequality, generated largely (though, of course, not entirely) by severe restrictions on market freedom – restrictions that take the form precisely of the failure to socialize the rental value of land. The private appropriation of rent generates socio-economic inequality and inefficiency by facilitating the monopolization by private landowners of the natural and social advantages from which the rental value of land is derived: each privately owned site is monopolized by its owner, and all other citizens are excluded both from the land itself, and from the locational advantages that generate its rental value (Hodgkinson, 2008, pp. 54–55).

In the light of the arguments connecting the socialization of rent with the protection of market freedom presented in Chapter 3, it is difficult to see how the opportunities and prospects of less advantaged citizens could possibly be maximized under an institutional arrangement that facilitates the exclusion of non-landowners from the land. As we saw in Chapter 3, land is a distinct factor of production, which is both essential to (almost) any kind of productive activity and (more or less) fixed in supply. The nature of human wants and desires being what it is (i.e., unlimited), this means that increases in population and improvements in methods of production will generate ever higher demand for land (without which, labour and capital are more or less useless), the value of which will, for this reason, constantly rise. In an orthodox laissez-faire society, then, a disproportionate share of the gains from progress and development will be appropriated by the owners of valuable land, whether or not they participate in the process of wealth creation by providing any inputs of labour or capital, with smaller shares, and consequently fewer opportunities and worse prospects, going to less advantaged members of society, who own the least valuable land, or no land at all. What could (and should) be treated as public property – the rental value of land, a taxable surplus to be shared equally among all members of society – instead becomes private property which is regressively redistributed to the most advantaged members of society.

Moreover, full private property in land both empowers and incentivizes more advantaged citizens to acquire more land than they are capable of using for their own productive purposes, thereby reducing the amount of land available for the productive purposes of less advantaged citizens. This artificial scarcity of land effectively forces landless workers to accept lower wages than the wages they could have earned by using rent-free sites in marginal locations, were any such sites available for them to use. With scarcity rent higher as a proportion of total output, and wages lower, the share of total output claimed by the most advantaged members of society is further increased, while the share divided among the less advantaged is further diminished.

The institution of quasi-private property in land would greatly increase the number of sites available for productive use in both marginal and intramarginal locations, thereby significantly enhancing the bargaining power of less advantaged citizens in relation to those who would otherwise be in a position to compel them to work for less than they would be capable of earning by using rent-free sites in marginal locations (Hodgkinson, 2008, pp. 100–108). In this way, the socialization of rent would allow workers (and capitalists) to raise the general level of wages by reducing the proportion of total output being claimed by landowners as scarcity rent, as well as providing all citizens with their fair share of the value generated by their collective productivity. In an unorthodox market democratic society, the socialization of rent would ensure that the shares of total output claimed by each citizen would be far less disproportionate to each citizen’s productive contributions. Moreover, if the rental value of land is fully socialized, then the providers of labour and capital receive – in the form of publicly provided services – their fair shares of the rental value that their cooperate productive economic activity generates, in addition to the wages and interest that each receives in exchange for the private productive economic activity in which each engages. Although workers and capitalists using valuable land will still be required to pay a portion of their wages and interest as rent, what they will thereby be paying for is the right to exclusive access to the natural and social advantages which are attached to these sites, rather than what would otherwise in effect be a privately collected tax.

The problems of extreme inequality and restricted opportunity generated by the private appropriation of rent are of course greatly exacerbated by the negative impact of the taxation of productive economic activity that is unavoidable in the absence of the socialization of rent. Even in the absence of significantly redistributive social welfare institutions, the institutionalization of orthodox laissez-faire capitalism entails the imposition of a significant level of compulsory taxation in order to fund the core functions of the state, the essential public goods and services, in the absence of which fruitful economic activity would be greatly impeded. If land is owned as full private property, so that its rental value is entirely privately appropriated, then the burden of taxation must fall on production, employment, or consumption in the form of income tax, payroll taxes, sales taxes, corporate profits tax, capital gains tax, tariffs and duties, and so on.[1] The problem for the proponents of laissez-faire capitalism, however, is that the conventional taxation of productive economic activity is almost certainly not the most effective way in which to generate the necessary public revenues, since, for reasons set out in Chapter 3, the imposition of taxation on productive economic activity has the perhaps rather unsurprising effect of distorting and suppressing the activity upon which it is imposed. Through its impact at both the intensive and extensive margins of production – at which points, potential output is only just enough to cover the costs of employing labour and capital – such taxation generates unemployment and deadweight losses, and thereby reduces the total output available for distribution among the citizens of society (ibid., pp. 171–178). The inevitable result of such state-induced inefficiency is poverty and severely diminished substantive opportunities for the least advantaged members of society.

The inefficiency and destructive impact of conventional taxation contrast starkly with the efficiency-enhancing effects of the socialization of the rental value of land through the imposition of land value taxation (LVT). Mainstream neo-classical economists have now endorsed the geo-classical view that since the supply of land is more or less completely inelastic, the taxation of its rental value cannot distort or suppress economic activity, and will not generate the deadweight losses with which conventional taxation is rightly associated (Samuelson and Nordhaus, 1989, pp. 666–669). Since the site values which form the basis of such a tax are almost entirely a function of general social and economic progress and development, rather than the result of any inputs of capital or labour for which the owners of the valuable sites can claim to be personally responsible, almost the entire rental value of these sites can be taxed and thereby socialized in order to generate public revenue, without this process of socialization in any way reducing the amount of income and wealth that is available for distribution among the citizens of society. Indeed, the proponents of LVT have gone further than mainstream economists in arguing that such a tax would enhance efficiency and stimulate economic activity by incentivizing the efficient use of sites which would otherwise be under-utilized or completely idle, and by generating the conditions for (relative) economic stability (Gaffney, 1994, pp. 89–94; Hodgkinson, 2008, pp. 178–187).

On the basis of these considerations, it is surely plausible to suggest that the substantive opportunities of the least advantaged members of society to pursue their conceptions of the good would be much greater in a laissez-faire MDPOD than they would be in an orthodox laissez-faire capitalist society. However, one might reject this conclusion by suggesting that the full socialization of the rental value of land would in fact be likely to have at least one distortionary effect on economic activity – namely, that of forcing the owners of valuable sites to engage in more economic activity than that in which they might have chosen to engage, had they been freeholders rather than quasi-private owners. What I shall argue in the remainder of this section is that there are good reasons to think that this particular kind of distortionary effect would be much more pronounced in an orthodox laissez-faire society than it would be in an MDPOD. The private appropriation of rent, I shall argue, provides the most advantaged members of society with the power to compel less advantaged citizens to engage in economic activity in which they might otherwise choose not to engage. The socialization of rent, by contrast, would enhance the substantive opportunities of less advantaged citizens to determine for themselves the nature and extent of their participation in economic production, at least within the reasonable limits set by the protection of the rights of all citizens to do likewise.[2] Thus, any opportunity-restricting effects of the socialization of rent will be heavily outweighed by the considerable opportunity-enhancing effects of this institution.

The Endowment Tax and the Exploitation of the Talented

In order to bring out the sense in which the opportunity-enhancing effects of LVT will be likely to outweigh any opportunity-restricting effects it might have, I shall now compare and contrast it with a form of tax which certainly can be rejected on the basis that it would be more opportunity-restricting than opportunity-enhancing – namely, what has become known as the ‘endowment tax’. This is a specific kind of lump sum tax that specifies a fixed proportion of the income that each tax-payer can potentially earn as the amount payable in tax – rather than specifying a fixed and equal amount payable by all tax-payers, as with a simple head or poll tax. The argument for the supposed virtue of this form of tax is that it would not generate the deadweight losses and reductions in overall productivity and efficiency associated with other forms of tax, since it requires individuals to pay tax in proportion to their natural ability or potential to earn income – as determined by the extent and range of their natural talents and endowments – rather than in proportion to the actual amount of income that each earns at any given time. Since it specifies an individual’s tax liability in terms of her abilities or endowments rather than in terms of her current income or consumption patterns, this form of tax generates no behavioural distortions (such as the substitution of paid employment for leisure) and is fair to tax-payers, in the sense that it requires none to pay more than they are able to pay (in contrast to the simple head or poll tax, which the highly endowed will find much easier to pay than the less highly endowed) (Sugin, 2011). Endowment taxation, it is argued, thereby transcends the conflict between equity and efficiency, since it is neutral between the values of paid employment and leisure, and raises the maximum amount of revenue with the minimum of economic cost (ibid.).

This idea of endowment taxation is, of course, vulnerable to a range of obvious and powerful objections relating to its practical implementation and feasibility, and it is usually regarded as an abstract ideal in relation to which the adequacy of ‘real-world’ taxes may be compared and judged, rather than as a form of tax which can be practically implemented (ibid., pp. 237–238). But aside from the practical difficulties involved in assessing tax liabilities based on something that cannot readily be observed (purely ‘natural’ talents and abilities), the endowment tax is vulnerable to more principled criticisms, the most relevant of which to this discussion relates to the problem that the highly endowed are constrained by the tax in their ability to determine and pursue their conceptions of the good, since they are compelled by it to engage only in the kinds of productive activities which will generate the income needed to pay the tax (Murphy and Nagel, 2002, pp. 122–125; Rawls, 2001, p. 158; Sugin, 2011, p. 239). One of the principal ‘virtues’ of the endowment tax is that it generates no ‘substitution effects’, since it does not encourage, or indeed allow, highly paid individuals to substitute leisure for labour by working less. However, as Linda Sugin points out, it is not the case that this form of tax generates no distortionary effects of any kind: as with the standard income (or consumption) tax, an endowment tax might well generate a substantial ‘income effect’ by encouraging individuals to work more and harder in order to generate the same post-tax income (or level of consumption) that they would have had in the absence of the tax (2011, p. 233).

More worryingly, Sugin argues, the endowment tax will in many cases be likely to completely foreclose an individual’s choice of occupation, and is therefore highly distortionary, even in the absence of any substitution affects. Sugin invites us to consider the example of an investment banker and a disaster-relief worker with equal abilities, one earning $1 million and the other $40,000. Since they could each have chosen the other’s work, the endowment tax treats them the same, with the result that whereas they may have had equivalent welfare before imposition of a tax:

a $30,000 tax (calculated at 3% of a $1 million endowment) leaves the relief worker with a tremendous reduction in welfare, while the investment banker suffers only a small reduction. After tax, they are in very different positions because now the relief worker, even if she cares much less about money than the investment banker when she makes $40,000, has so little that she is unlikely to cover her basic needs. If the tax rate—while still low—is 5% of endowment, the relief worker must choose other work—her choice is foreclosed by her high ability to earn. Thus, the endowment tax clearly distorts the choices of the high-ability individual in favor of higher-paying market work.

(ibid., p. 235)

As Sugin suggests, many citizens will consider distortions that affect fundamental life decisions – such as one’s choice of occupation – to be highly important when evaluating justice in taxation, since choice of occupation is central to individual autonomy and the assertion of personal identity (ibid., p. 237). By imposing a tax liability on an individual, irrespective of the amount and kind of productive activity that this individual chooses to perform, endowment taxation expresses an intuition and a bias that favour productive activity over non-productive recreational activity, and that favour one particular kind of productive activity over any other kind – maximum market wage (or self-employed) labour over other productive activities such as childcare or home education, housework, writing poetry or performing music, and so on (ibid., p. 259).

The supposed fairness and neutrality of endowment taxation would seem therefore to be illusory, since the range of conceptions of the good that can be pursued by the most naturally talented and gifted citizens would be severely restricted by the imposition of the tax, which imposes a kind of slavery (or at least exploitation) of the talented by forcing citizens into a pre-determined highly productivist life plan from which it is impossible (legally) to escape. Insofar as the endowment tax would indeed benefit the least advantaged members of society, then, it would do so only at the cost of harming the fundamental interests of the most highly skilled and talented citizens to such an extent that many of these citizens would in fact be transformed into a new group of least advantaged members of society, for whom the imposition of endowment taxation would be highly disadvantageous. The substantive opportunities of these members of society to pursue their conceptions of the good would be so heavily restricted that this would outweigh the generation of additional advantages for the members of society who were the least advantaged prior to the imposition of the tax.

The Rent Tax and the Exploitation of the Landless

It is an obvious and important question whether LVT is vulnerable to the same kinds of objections as those to which the endowment tax is vulnerable. Opponents of the socialization of rent might point out that, like endowment tax charges payable by highly naturally talented individuals, LVT charges payable by quasi-private landowners are assessed not on the basis of the income that each landowner chooses to earn, but rather on the basis of the income that each would be able to earn if they chose or were compelled to live in a certain way – that is, if they chose or were compelled to use their land to its optimum productive potential. Just as a tax based on the potential value of natural talents and abilities (a tax which must be paid whether or not these endowments are actually exercised) will be likely to eliminate many of the options that would have been available to a naturally highly talented individual in the absence of the tax, a tax based on the potential that can be produced on any given site will be likely to eliminate many of the options that would have been available to a private landowner in the absence of this tax.

It might then be argued that LVT is just as biased and unfair as the endowment tax, since a quasi-private landowner might be compelled by a large LVT liability to engage in maximally productive activity, whether this takes the form of work which must be performed in order to earn the income necessary to pay the LVT charge for a valuable residential site, or income which must be generated from commercial activity in order to pay the LVT for a valuable commercial site. If what the quasi-private landowner actually wishes to do is to utilize her land for non-productive (or less than maximally productive) purposes – for example, to take early retirement while continuing to the live on the highly valuable residential site which she identifies as her home – then a large LVT liability could prevent her from taking this (or any other) less productivist course of action. It is easy to imagine scenarios in which high LVT liabilities force the owners of valuable sites to use these sites in ways that they find unacceptable, so that in order to pursue their conceptions of the good, they must sell their land and acquire sites which are more appropriate for the kinds of activities in which they would prefer to engage – should any such sites happen to be available.

On the basis of such considerations, it might seem that the socialization of the rental value of land would take away from the institution of private property many of the features which make rights of private ownership so essential to the protection of citizens’ fundamental interests in the exercise of free moral agency. Is A’s right to the exclusive use of X not violated if A is prevented by the tax system from using X to do anything other than generate the income needed to pay the tax liability that is attached to X? And is A’s right to security of tenure in respect of X not violated if A is forced by the tax system to sell or otherwise renounce X in order to avoid having to engage in a productive activity in which A is unwilling to engage? Far from being essential to the maximization of the opportunities of the least advantaged members of society to pursue their conceptions of the good, LVT, so it will be argued, undermines this objective by undermining the institution of private property itself, thereby making it unreasonably and unnecessarily difficult for citizens to engage in the kinds of productive activities in which they prefer to engage, or to escape from the pre-determined ‘productivist’ lifestyle imposed by the tax.

I shall address these questions by contrasting the opportunity-restricting effects of LVT with those of the endowment tax. The feature of the endowment tax which makes it biased and unfair is, of course, the same feature which is supposed to enable it to transcend the conflict between fairness and efficiency, and the subsequent need to make trade-offs or compromises between these objectives. The natural talents and abilities that form the basis of the endowment tax and determine the amount that each citizen must pay are fundamentally personal and non-public, and are central elements of the private identities of the individuals to whom they belong. My natural talents and abilities are not attributes that I have chosen to be part of my identity, but rather properties of my personality which have been attached to me at birth (or before), and which I cannot choose to transfer to anyone else. Such properties are mine, and mine alone, probably for (almost) as long as I live. If I am required to make regular payments – to pay a kind of rent – to the public authority in proportion to the potential value of my natural endowments, then my choice of occupation, and thus also my substantive opportunity to pursue my conception of the good, are severely restricted. Given the permanence of my natural talents and abilities, this is a situation from which it is impossible for me (legally) to escape. It is this feature from which the apparent ‘efficiency’ of the endowment tax derives, since if the relevant talents and abilities could be transferred or relinquished, the tax would be avoidable and would be likely to generate significant substitution effects, with individuals choosing to relinquish their endowments in order to have the opportunity to engage in less wage-maximizing activity.

It is clear that LVT is far less vulnerable to the objections of bias and unfairness to which the endowment tax is vulnerable. Part of the reason for this is that, unlike a high endowment tax liability which cannot be avoided (since one cannot choose to relinquish one’s natural endowments), a high LVT liability can be avoided or eliminated, since a quasi-private landowner can choose to relinquish ownership of the valuable site to which the tax liability is attached. It is true that people often become deeply attached to the valuable sites that they own, and that to compel an owner to relinquish her right to the exclusive use of a site to which she has become deeply attached would be to remove an opportunity that would otherwise have been available to her. But valuable sites to which an owner has become deeply attached are in no way comparable to natural talents and abilities which are more or less permanent and irremovable aspects of one’s personality and identity, and from which it is impossible ever to escape. This is one important sense in which natural talents and abilities are fundamentally private and non-public, and in which valuable sites are not.

However, even if a high LVT liability, unlike a high endowment tax liability, is something from which it is possible to escape, it does not necessarily follow from this that it is justifiable to compel people to relinquish their ownership of valuable sites, should this be the only way in which they are able to escape a LVT liability, which they are unable or unwilling to meet. We still need to explain why the limitations of the rights of use and security of tenure which characterize the institution of quasi-private property in land are justifiable. In order to do this, we can highlight another important sense in which the fundamental privacy of natural talents and abilities may be contrasted with the fundamentally public nature of land and land values. Consider first the way in which the non-public status of natural endowments limits the extent to which the private appropriation of the value of such endowments can harm the interests of the least advantaged members of society. If I appropriate the full value of the product which I generate by exercising my natural talents and abilities, I do not thereby prevent other members of society from exercising their own natural talents and abilities by using them in conjunction with other factors of production like land and capital. My private appropriation of the value of my natural endowments simply means that my fellow citizens can benefit from my exercising these endowments only in the sense that the exercise of natural talents and abilities is always (or usually) to a certain extent a mutually beneficial positive-sum game.

Similarly, if I fail or refuse fully to develop and exercise my natural endowments, I do not thereby deprive my fellow citizens of substantive opportunities to develop and exercise their own natural talents and abilities, to use these in conjunction with the other factors of production, and thereby to pursue their conceptions of the good. Though my fellow citizens might be disadvantaged by my failure to develop and exercise my natural endowments to their full potential, my failure to do this does not provide me with power over any of my fellow citizens – the sort of power that would enable me to determine the kinds of productive activity in which they must engage, and the extent to which they must engage in any kind of productive activity. My failure fully to develop and exercise my natural talents and abilities will at worst deprive my fellow citizens of the relatively insignificant benefits that my talents and abilities, if fully developed and exercised, would have generated. Thus, when a person claims and obtains the right to the full value of the product of their fully developed and exercised natural talents and abilities, or the right to leave these endowments undeveloped or unexercised, this person does not thereby significantly restrict the substantive opportunities of their fellow citizens to pursue their conceptions of the good.

The relatively insignificant impact of the privatization of natural endowments on the interests of the least advantaged is in stark contrast to the massive impact of the private appropriation of the rental value of land, which provides private landowners with immense power over landless workers, radically restricting the number and range of substantive opportunities available to them. As we saw in the previous sub-section, the institution of full private property in land is simultaneously inefficient and regressive, since it provides landowners with the power to prevent non-landowners from using the opportunities offered by nature, and results in the economically destructive socialization of privately created property in order to fund the costs of the core functions of the state. The private appropriation of the socially created surplus is a negative-sum institution which benefits landowners at the expense of the landless: the rent received by landowners is in effect a privately collected tax which is paid by the landless in addition to any conventional taxation that they pay. The socialization of privately created property in order to fund the core functions of the state is therefore a subsidy provided by the landless to private landowners, who are in a position to collect the rent tax from the landless only because the latter are compelled by the state to pay twice for the cost of government.

A shift in the burden of taxation on to rental value of land would free landless workers and capitalists from the need to engage in productive activity on behalf of private landowners, and from the burden of what is in effect regressive redistributive taxation. It is the imposition of this burden – through the private appropriation of rent – that has the distortionary effect of forcing workers and capitalists to utilize land more intensively than they would otherwise choose, and to perform more productive economic activity than they might otherwise choose. Shifting the burden of taxation from productive economic activity to the rental value of land would eliminate this distortionary effect, rather than generate it. Thus, the conditionality of quasi-private landowners’ rights of use, tenure, and transmissibility in respect of the sites that they own – which the imposition of a high rate of LVT certainly entails – is justified and far outweighed by the greater substantive opportunities that landless workers and capitalists would have to determine the extent and nature of the productive activities in which they engage. Unlike the endowment tax, then, LVT is not biased in favour of ‘productivist’ conceptions of the good.

The Distribution of Privately Owned Land

There is a further set of considerations which strengthen the conclusion reached in the previous sub-section. These relate to the likely effect of the socialization of rent in broadening the distribution of (quasi-)privately owned land. It is not unreasonable to suppose that, in an orthodox laissez-faire capitalist society, the demand for land would be so high that a substantial proportion of the citizens of such a society would never be a position to acquire a freehold (Gaffney, 1994, pp. 71–73). The selling price of land is simply the capitalization of its potential future rental income, which varies according (among other things) to the interest rate, the availability of credit, and the level of taxation (both actual and predicted) imposed on land values. Low interest rates and a low burden of taxation generate high capital values and therefore high selling prices. In an orthodox laissez-faire society, in which the rental value of land is entirely privately appropriated, investments in land will seem highly attractive to anyone in a position to make such an investment – certainly more attractive than investments in productive enterprises using depreciating capital and labour upon which taxation is imposed. Those in a position to make such an investment are obviously much more likely to be existing landowners who already benefit from the private rent tax than landless workers forced to subsidize private landowners.

The private appropriation of rent in an orthodox laissez-faire society would therefore generate ever more highly concentrated landownership as existing landowners, operating from the position of power conferred by their landownership, expand their ‘property portfolios’, and as landless workers and capitalists, disempowered by their landlessness, fall deeper and deeper into propertylessness and debt (Hudson, 2015). In such a society there would of course be landless workers and capitalists earning incomes high enough to enable them to save a deposit and secure the credit needed to acquire the freehold to a valuable site. Such people would eventually become landowners, gaining the rights of full private ownership that enable them to ‘free-ride’ on the labour and capital provided by others – at least if their incomes remained high enough for long enough to pay off their mortgages. However, even such high earners would, for a substantial period of their lives, effectively remain landless high earners, forced to pay rent – in the form of mortgage interest payments – to banks and other financial ‘services’ providers. Were the incomes of such people for any reason substantially to decrease, such that they could no longer afford to continue paying their mortgage, they would be likely to remain disadvantaged non-landowners who have simply transferred a significant part of their earnings as something-for-nothing gains to existing landowners/mortgage providers.

In an orthodox laissez-faire society, then, the institution of full private property in land would severely restrict the substantive opportunities of less advantaged citizens to pursue their conceptions of the good – whether this entails engaging in productive economic activity or performing some other non-productivist kind of activity. The benefits of private landownership would be restricted to a narrow, highly privileged section of the population of such a society, with the burdens borne by the substantial excluded majority. Any sort of practical project pursued by less advantaged members of such a society would need to be productive enough to generate the revenue required to cover both the rent for a suitable site and the burden of conventional taxation. Even sites in marginal locations – which would usually be the most suitable sites for the pursuit of non-productivist projects and objectives – would be relatively expensive to rent or acquire, with full private property in land increasing the scarcity rent and reducing wages as proportions of total output.

In an MDPOD, by contrast, the benefits of (quasi-)private landownership would be much less generous (since they would be non-exploitative) but much more widely distributed. One obvious effect of a tax that bears on the rental value of land is to drive down the prices for which sites sell, since if some or all of the potential future income generated by the rental value of a site must be paid out by the landowner in tax, then the capitalized value of this site will be correspondingly lower. The less advantaged members of an MDPOD society would therefore have the opportunity to use their higher wages to acquire rights of exclusive use in respect of residential, commercial, agricultural, or any other kind of site, by making ongoing LVT payments which are the equivalent of the payments of rent that most would have been required to make to a private landowner in an orthodox laissez-faire society. Such people would no longer be forced to bear an additional burden of conventional taxation, or to access credit in order to cover the cost of a deposit for the freehold of a fully privately owned site. In other words, it would be much easier to become a quasi-private landowner in an MDPOD than it would be to become a fully private landowner in an orthodox laissez-faire society.

It is true that in an MDPOD opportunities to use highly valuable sites for non-productivist purposes (say, to run a ‘city farm’) would be greatly restricted. Aside from the observation that in an orthodox laissez-faire society such opportunities would also be heavily restricted for the landless majority, it is in any case not clear that the restriction of such opportunities in an MDPOD should be regarded as in any way unjust. If the substantive opportunities of the majority of citizens (including the least advantaged) to pursue a reasonable conception of the good (including the pursuit of non-maximally productive objectives and projects) are radically enhanced because a shift in the burden of taxation means that these citizens can no longer be compelled to engage in productive activity on behalf of a small number of private landowners, then such a tax shift is surely justifiable, even if it restricts rather than enhances opportunities to engage in non-maximally productive activity on highly valuable land. On balance, the socialization of rent would generate far more opportunities than it would eliminate, and if aspects of certain kinds of conceptions of the good cannot be accommodated in such a society, then this might simply be a manifestation, not of injustice, but of what Isaiah Berlin was so keen to remind us – the fact that there is no possibility of utopia, of a perfect social world without loss (Berlin, 1969).

The justification for a shift in the burden of taxation on to the rental value of land can therefore be summarized thus: the advantages gained by quasi-private landowners in the form of improved access to potentially productive (though not necessarily highly valuable) sites (whether commercial, residential, industrial, or agricultural) and an increased share of the product generated by the utilization of these sites (whether interest, or profits, or wages of labour) are likely to more than compensate for the disadvantages resulting from the restriction of the rights of quasi-private landownership relative to unrestricted rights of fully private landownership. In other words, the advantages of improved opportunities to create private property (income and wealth), together with the more effective protection (lower taxation) of this privately created property, outweigh the advantages of the protection of the rights of full private landownership, which come at the cost of restricted opportunities for the vast majority of people to participate in the creation of private property, and less effective protection of this property once created.

Thus, the benefits of unconditional private landownership, which are enjoyed by only a minority of the most advantaged members of society at the expense of the landless majority, cannot possible justify the forced subsidization of the former by the latter. The benefits of conditional private landownership, by contrast, may be enjoyed simultaneously by all members of society, and certainly do justify the condition of rent-socialization to which the protection of rights of quasi-private ownership is subject. Far from being an essential element of the institution of private property, the private appropriation of rent turns out to undermine this fundamentally liberal institution, and is incompatible with the ideas of social justice and free and equal citizenship, at least in the context of an orthodox laissez-faire society. In the next section I consider the merits of solutions to the problems of inefficiency and inequality generated by the institution of unconditional private property in land, which do not involve the socialization of rent, and which might be proposed as alternatives to this core market democratic institution.

Interventionist Alternatives to the Socialization of Rent

Interventionist Versus Non-Interventionist Responses to the Problems of Orthodox Laissez-Faire Capitalism

Since the socialization of the rental value of land is an essential institutional condition for the effective protection of market freedom, the private appropriation of this value may plausibly be said to amount to state intervention in the free market system. By providing unconditional protection to rights of private landownership, the orthodox laissez-faire state compels landless citizens to subsidize private landowners by paying a privately collected rent-tax in addition to publicly collected conventional taxation, and provides landowners with the power to exclude the landless from the natural opportunities offered by nature. This interference in the productive economic activity performed by a substantial proportion of the citizens of such a society prevents the institution of private property from achieving what would otherwise be the useful function of coordinating the individual plans and purposes pursued by members of society so that the competitive free market system is a mutually beneficial positive-sum game.

As we have seen, one way of attempting to solve this problem would be to eliminate the state intervention in the free market system that results from the private appropriation of the rental value of land, by making the protection of rights of private landownership conditional on the socialization of this rental value. If a range of serious social problems are caused by unnecessary and unjustifiable state intervention in the free market economy, then why not attempt, at least as a first step, to solve these problems by eliminating the unjustifiable interference? On this view, a shift in the burden of taxation from productive economic activity to the rental value of land is both necessary and sufficient to solve the problems of orthodox laissez-faire capitalism.

However, one might wish to argue that the socialization of rent would be either unnecessary or insufficient as a response to the problems of orthodox laissez-faire capitalism. Perhaps these problems can be solved more effectively by increasing the degree to which the state intervenes in the free market economy – that is, not by seeking to enhance the protection of market freedom, but by seeking further to restrict it. The proponents of this kind of approach would take the view either that the problems of orthodox laissez-faire capitalism are not as serious as I have suggested, and could be solved by the mildly interventionist institutions of limited government capitalism; or that the problems of laissez-faire capitalism are indeed as serious as I have suggested, but that they are not caused predominantly by the private appropriation of rent, and would be solved most effectively by weakening the protection of rights of private ownership and thereby allowing for significant progressive redistributive taxation and regulation. In this section I consider the merits of these interventionist approaches, and I argue that while some interventionist institutions might turn out to be necessary in addition to the non-interventionist socialization of rent, none should be proposed as an alternative to this market democratic institution. The correct assessment of the land value tax, I shall suggest, is that it is necessary but not necessarily sufficient for a liberal society of free and equal citizens.

Orthodox Limited Government Capitalism

In addition to the minimal emergency safety-net welfare institutions of orthodox laissez-faire capitalism, orthodox limited government capitalism (as this model is described by Tomasi) incorporates mildly regulatory and redistributive mechanisms such as a minimum income guarantee (perhaps in the form of a ‘negative income tax’ or universal basic income scheme), and the provision of tax-funded education and healthcare insurance. Would such mildly interventionist institutions solve the problems associated with orthodox laissez-faire capitalism? Given what we know about the effect of ‘negative income tax’ and other tax credit schemes in subsidizing profitable businesses and generating poverty traps for those receiving these so-called ‘benefits’, and given what we know about the impact of publicly funded schools and hospitals on the rental value of the locations within which they are situated, it seems highly unlikely that such institutions would justify the continued private appropriation of rent.

Consider first the idea of a tax credit scheme, such as the negative income tax. Unlike the universal basic income, which is a non-means-tested regular payment received by all adult citizens, a tax credit is a regular payment made only to people working a certain minimum number of hours per week (say, 30), but earning less per year or month than a certain specified amount. Since the amounts paid are reduced, ultimately to zero, when recipients start to earn more than the specified income level, the scheme effectively generates an extremely high marginal tax rate on income earned above the specified minimum level, thereby discouraging people from working longer hours and earning more, and generating deadweight losses (Hazlitt, 1969, pp. 84–100). And because recipients are required to work a minimum number of hours per week, many highly profitable businesses (such as large supermarkets) are effectively provided with a pool of subsidized labour – a subsidy which increases the dividends and salaries that can be paid to the shareholders and managers of such businesses, but which is funded by the taxation borne by all businesses, including less profitable ones located at or near the margin of production. The result is more deadweight losses, lower wages, higher unemployment, and higher taxation to fund the higher public spending on emergency welfare benefits; and then yet more deadweight losses, higher unemployment, higher taxation, and so on and so forth. It is difficult to see how such an obviously inefficient interventionist policy could benefit the least advantaged members of society more effectively than the socialization of the rent which these citizens otherwise have to pay as a privately collected tax.

Consider next the provision of tax-funded vouchers or credits to less advantaged citizens for the payment of education and healthcare costs. Such schemes could take the form of the mildly redistributive[3] imposition of a flat rate of income, payroll, or sales tax in order to fund the provision of vouchers to be spent on education and private health insurance. The arguments in favour of the implementation of mildly interventionist measures of this kind in addition to the socialization of rent are certainly strong and compelling. In the first place, there is a clear sense in which such services and benefits are public goods which improve the opportunities of all citizens, not only those who have the strongest need for the services and benefits in question (Hayek, 1982, Vol. 2, p. 87; Weale, 2013, p. 213). A society in which significant numbers of less advantaged citizens are insufficiently educated or healthy enough to participate in productive economic activity is unlikely to be a society in which more advantaged citizens who are well educated and healthy are able to make the most of their favourable positions. More importantly, it is difficult to see how the substantive opportunities of the least advantaged members of society would be maximized in the absence of access to high quality education for all, and without the pooling of risk provided by universal health insurance (Thomas, 2016, p. 330; Weale, 2013, pp. 205–210). I shall assume that the mildly interventionist provision of some form of tax-funded assistance for the purposes of covering the cost of education and healthcare would be an essential institution for any kind of just liberal society, whether market democratic or social democratic, without going into the details of which specific form of assistance would be the most effective.

However, such assistance for less advantaged citizens will not solve the orthodox laissez-faire problems of poverty, unemployment, inequality, and insecurity, and do not justify the private appropriation of rent. The rental value of sites in residential locations is influenced by their proximity to schools and hospitals, and by the quality of these schools and hospitals. The rental value of sites with the best access to the best facilities is higher than the rental value of sites with less good access, or with access to inferior facilities. Since the facilities in question would be funded at least in part from revenue generated by the imposition of a flat rate of conventional taxation borne by landless, less advantaged citizens as well as more advantaged private landowners, any ‘assistance’ provided to the former would be largely illusory. With rent privately appropriated, most of the value generated by tax-funded schools and hospitals would enrich private landowners/mortgage providers through higher rents/mortgage interest payments, so that the less advantaged landless would still be forced, through their tax payments, to subsidize the more advantaged private landowners. The imposition of conventional taxation to fund services which have the effect of raising the rental value of land, in conjunction with the private appropriation of the value which is thereby raised, is still a form of regressive redistributive taxation which transfers property from the less to the more advantaged, even if the services in question are used predominantly by the less advantaged.

Another mildly interventionist policy, familiar to residents of the United Kingdom, aims to address the problems of unequal private landownership by subsidizing the acquisition of newly-built housing (through a scheme known in the UK as ‘Help to Buy’), or of existing social housing by longterm tenants (through a scheme known in the UK as ‘Right to Buy’). With regard to the provision of subsidies for the purchase of newly privately constructed housing, the obvious danger is that these subsidies will simply raise the price of privately constructed housing, benefitting the private owners of residential land at the expense of those paying the taxes that fund the subsidy (Giles, 2013). Such schemes can therefore only be expected to enhance the substantive opportunities of less advantaged members of society if new social housing is constantly being constructed, and if the price of newly privately constructed housing is controlled, so that the provision of the subsidy benefits the purchaser rather than the existing private owner. Indeed, for any such schemes to be at all justifiable, the aim must be to achieve universal private ownership of residential land, with all adult citizens becoming owner-occupiers. Anything less than this would create a class of non-landowning rent-paying tenants who would be worse off than ever, subsidizing through their own taxation the private ownership of those benefitting from the right-to-buy scheme, and at the same time paying inflated rents or large amounts of mortgage interest to private landowners and banks – the real beneficiaries of the scheme.[4]

If significant subsidies are offered for the purchase of existing social housing, then these subsidies will benefit disadvantaged citizens only while there are stocks of social housing available for purchase. The simple selling-off of the existing stock of social housing at discount prices without any attempt to replenish stocks is clearly a short-term gimmick which will benefit one small section of the population at the expense of younger generations.[5] The question which must then be addressed is whether the construction of social housing constitutes an interventionist alternative to the socialization of rent. The construction of social housing could potentially be ‘self-funding’, amounting to an indirect form of rent socialization which would probably enhance the opportunities of less advantaged citizens. After an initial outlay to fund construction of the first units, subsequent construction could be funded from rents paid by social housing tenants or from revenues generated by sales to long-term tenants. However, once there is no more state-owned land left to build on, residential sites must be purchased by the government at prices considerably below market value if the subsidization of rents or purchases is to benefit less advantaged citizens rather than more advantaged current landowners. The use of revenues generated by flat rates of conventional taxation to fund the acquisition of residential sites at full market value would be just another instance of disguised regressive redistributive taxation.

However, even the complete universalization of owner-occupation, with the much broader distribution of privately appropriated rent that this entails, would not constitute an acceptable alternative to the socialization of rent. Part of the reason for this is that the need for the imposition of conventional taxation would mean that less advantaged citizens living in lower-value locations closer to the margin of production would still be required to subsidize more advantaged citizens living in higher-value locations further from the margin of production. This subsidization would still amount to the imposition of regressive redistributive taxation, which, though less regressive than it would be with rent more narrowly distributed, would nevertheless generate inefficiencies, deadweight losses, poverty, and inequality. More importantly, the very considerable rental value of retail and commercial land would continue to be appropriated by a relatively small number of more advantaged private landowners, thus depriving the majority of less advantaged citizens of their fair share of the socially created surplus. The construction of social housing should therefore be identified as one of the possible means by which the socially created surplus may be socialized, rather than as a progressive alternative to the much more radically progressive goal of the socialization of the rental value of land.

Progressive Redistributive Taxation

In the previous section I argued that the imposition of what might appear to be a mildly redistributive flat rate of tax in order to fund vouchers for education and healthcare costs for all citizens would, against a background context of the private appropriation of rent, in fact turn out to be a form of regressive redistributive taxation from which more advantaged private landowners would benefit more than landless workers and capitalists. The same cannot be said about more strongly progressive forms of redistributive taxation which might be imposed in order to fund the provision of a broad range of services and benefits for less advantaged members of society, and which would be paid predominantly or perhaps even exclusively by the more advantaged. Since private landowners (including the recipients of mortgage interest payments and imputed rent) are likely to be among the most advantaged members of society, the imposition of strongly progressive redistributive taxation cannot be said to be regressively redistributive in the sense in which a flat tax imposed on all citizens is regressively redistributive. The question is whether the imposition of strongly progressive redistributive taxation would have as progressive an impact as its proponents suggest.

The answer to this question depends in part on the impact that progressive taxation would be likely to have on productive economic activity. If progressive taxation has, as its opponents suggest, a negative effect on productive economic activity, then it might be the case that the imposition of such taxation would have no real progressive impact, or perhaps even a regressive impact. The proponents of progressive taxation, however, argue that for a number of reasons its economic impact is more likely to be positive than negative. One argument is that high earners are often strongly motivated to work productively predominantly by the satisfaction derived from exercising their talents and abilities – whether for the public good or for their own personal ends – rather than by narrow pecuniary interests. Such individuals, it is argued, are often less sensitive to paying tax on their earnings than low paid workers whose consumption patterns are affected more strongly by taxation of their income (Roemer, 2013, p. 62). Another argument is that high rates of progressive taxation may be necessary to bring down excessively high rates of executive pay which are unlikely to reflect high levels of marginal productivity, thereby raising wages at the lower end without in any way reducing economic productivity (Picketty, 2014, pp. 508–514).

The disagreement between classical and social liberals on the issue of progressive taxation is particularly sharp, and I shall not take a strong position either for or against. It could be that the economic impact of progressive taxation in one society will be very different from the economic impact of this institution in another society. If, for example, the citizens of the United States were in general to regard high marginal tax rates much less favourably than the citizens of, say, the Scandinavian countries, then tax avoidance and evasion, as well as distortions in economic behaviour (concerning decisions relating to work, consumption, saving, investment, and so on) might be much less prevalent and less likely to generate deadweight losses in the latter than the former. The extent to which progressive redistributive taxation can be relied upon to improve the position of the least advantaged members of society might therefore vary considerably between one liberal society and another.

However, there are a number of reasons why it would be a bad idea to rely too heavily on progressive taxation, even in societies in which attitudes towards this institution are generally favourable. To have a significant effect in terms of enhancing the substantive opportunities of less advantaged landless workers, progressive tax rates would have to be sufficiently high, and imposed on a sufficiently large base of income (or consumption), to generate enough public revenue to make up for the value of the rent which has been privately appropriated rather than socialized. Even against a background context of generally favourable attitudes towards the imposition of such taxation, the high rates and broad income or consumption bases required to generate the necessary revenues would be highly unlikely to generate no distortions or deadweight losses, particular given the extremely high mobility of both capital and labour, and the ease with which financial capital can be moved into offshore tax havens. The danger is that an over-reliance on progressive taxation to solve the problems of laissez-faire capitalism would backfire and harm the interests of those most in need of assistance.

It is highly doubtful, moreover, that the use of progressive taxation to fund universal welfare services and benefits would, even if entirely successful, in itself be enough to create the social and economic conditions for a just liberal society of free and equal citizens. Many of the proponents of this institution, of course, recognize that this is the case, and have argued that in order to secure the economic independence and autonomy of the citizens of a liberal society, it is necessary to adopt a ‘predistributive’ approach to progressive institutional reform – to create a fairer predistribution of productive resources rather than relying too heavily on the redistribution of the incomes which highly inequitable distributions of capital allow people to earn. The question which must now be addressed, then, is whether the idea of ‘predistribution’ can provide an alternative to the idea of the socialization of rent.

‘Predistribution’ and the Social Democratic Property-Owning Democracy

The idea of progressive predistribution was brought to the attention of liberal political thinkers by Jacob Hacker (2011), who introduced the idea in the context of an attempt to identify the most important strategies for understanding and overcoming the challenges faced by progressives in the United States. Hacker attributes the ‘staggering shift’ in the pre-tax distribution of wealth that has occurred over the last generation (particularly in the United States), not to ‘impersonal forces of technological change and globalization’, but rather to politics and public policy – particularly those aspects of public policy concerning ‘the ways in which Washington has remade markets to advantage the top’ (Hacker, 2011). These include the undermining of labour unions and the organizing rights of labour, the setting of corporate governance rules which have encouraged top executives to drive up their own earnings, and the failure to address ‘changing economic conditions, such as the need to balance work and family’ (ibid.). Hacker argues on this basis that progressives thinking about the role of government in shaping the distribution of income and wealth in society should focus less on redistribution – ‘government taxes and transfers that take from some and give to others’ – and more on predistribution – ‘market reforms that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits’ (ibid.).

The idea of predistribution as conceived by Hacker resonates strongly with the much older conception of the ‘property-owning democracy’, an idea which originated in conservative political thought in the early twentieth century. Seeking to provide a set of policy options which would offer working-class voters an alternative to the collectivism offered by the socialists and communists, Scottish Conservative politician Noel Skelton suggested a number of ways in which the benefits of private property might be extended to a much larger proportion of the population, including the encouragement of profit-sharing and co-partnership in industrial production, the expansion of agricultural small-holdings, and the introduction of cooperative principles into larger agricultural enterprises (Jackson, 2012). Crucially, however, like the earlier ‘distributionists’ (Belloc, 1912), Skelton did not envisage a significant role for state action in the achievement of this objective (Jackson, 2012, p. 39). Skelton’s idea of democratizing or at least diffusing individual property-ownership culminated in the ‘homeownerist’ and privatization policies pursued in the UK in the 1980s and early 1990s, when social housing was sold at discount prices to long-term tenants, and shares in newly privatized industries were offered to small private investors. This, however, was the extent of the institutionalization of what we might call the ‘small state’ version of the property-owning democracy (unless we include the more recent ‘Help to Buy’ scheme introduced by the UK Coalition government in 2013).

But Skelton’s idea was also taken up during the period following the Second World War by the left-of-centre economist, James Meade, who developed a much more radically progressive and egalitarian interpretation of the POD. Meade argued that extreme inequalities in the ownership of property are

undesirable quite apart from any inequalities of income which they may imply. A man with much property has great bargaining strength and a sense of security, independence, and freedom … He can snap his fingers at those on whom he must rely for income, for he can always rely for a time on his capital. The propertyless man must continuously and without interruption acquire his income by working for an employer or by qualifying to receive it from a public authority. An unequal distribution of property means an unequal distribution of power and status even if it is prevented from causing too unequal a distribution of income.

(Meade, 1993 [1964], p. 41)

Meade also argued that egalitarian approaches to institutional reform such as strong and widespread unionization, and the use of high rates of progressive taxation to fund generous welfare services and benefits, should not be relied upon too heavily, since collective bargaining would be likely to become inflationary, while excessively high progressive tax rates would be economically inefficient (Jackson, 2012, p. 46).

Accordingly, Meade called for the aggressive taxation of transfers of wealth between generations, and for public investment in state investment funds which would acquire significant stakes in private industry (1993 [1964], p. 54). Both of these measures would generate funds for a ‘social dividend’, which could then be distributed in the form of a universal basic income, as well as in the form of substantial investment in education and training in order to reduce inequality in the distribution of human capital. It was through the combination of a range of egalitarian institutions – the diffusion of individual property-ownership resulting from the taxation of inter-generational transfers of property, the funding of a basic income and higher quality education for all citizens through investment in sovereign wealth funds, and the more familiar unionization and progressive taxation mechanisms – that Meade envisaged reconciling the demands of liberty, equality, and efficiency, which he considered ‘the ideological foundation on which a new consensus might be built’ (ibid., p. 16).

John Rawls drew heavily on Meade’s more interventionist egalitarian interpretation of the POD model in outlining his view of the kind of institutional context within which his conception of justice as fairness might be realized. Rawls thought that the full realization of his two principles of justice would require the main social and economic institutions of a liberal society to ‘disperse the ownership of wealth and capital’ and thus ‘prevent a small part of society from controlling the economy and indirectly political life itself’ (1999 [1971] : pp. xiv–xv). This diffusion of privately owned property would be achieved most effectively ‘not by redistributing income to those with less at the end of each period, so to speak, but rather by ensuring the widespread ownership of productive assets and human capital … at the beginning of each period’ (ibid.: p. xv). Thus:

[B]asic institutions must from the outset put in the hands of citizens generally, and not only of a few, the productive means to be fully cooperating members of society. The emphasis falls on the steady dispersal over time of the ownership of capital and resources by the laws of inheritance and bequest.

(ibid.: p. xv)

Rawls therefore endorsed Meade’s proposal to impose a high rate of tax on inheritances and gifts, though for Rawls the purpose of such a tax was solely ‘gradually and continually to correct the distribution of wealth and to prevent concentrations of power detrimental to the fair value of political liberty and fair equality of opportunity’, rather than to generate public revenue (ibid., p. 245). Like Meade, Rawls suggested that rather than imposing a tax on estates, the progressive taxation of inter-generational transfers of property might instead be applied ‘at the beneficiary’s end’, so that testators can avoid tax by making a large number of small gifts rather than one or two large bequests, and beneficiaries can accumulate capital generated from productive contributions without this capital being taxed at the high rate applied to gifted or inherited capital (Meade, 1993, pp. 52–54; Rawls, 1999 [1971], p. 245). Rawls also suggested (tentatively) that once the distribution of wealth has been suitably corrected, the public revenues necessary to satisfy the difference principle might most effectively be generated via a proportional expenditure or consumption tax rather than steeply progressive income tax (Rawls, 1999 [1971], p. 246).

Thus, the distinctive feature of the POD as envisaged by both Meade and Rawls was a focus on the predistributive mechanism of the diffusion of privately owned productive resources (including both human and non-human capital) rather than the redistribution of the incomes generated against a background of highly inequitable ‘predistributions’ of productive resources. While the institutions of the traditional welfare state aim to provide generous welfare services and benefits for all citizens through the aggressive taxation of high incomes, the institutions of the POD aim to broaden the distribution of privately owned capital and productive resources through the aggressive taxation of large accumulations of wealth, and to generate a ‘social dividend’ which could fund some kind of guaranteed citizen income (in the form either of a universal basic income or a negative income tax). Radical forms of predistribution, as Martin O’Neill and Thad Williamson (2012) have argued, ‘do not so much allow governments to tax less in absolute terms; rather, they require a fundamental shift in the focus of taxation from income to wealth’. As Alan Thomas puts it, Meade and Rawls ‘aim at nothing less than a macro-level restructuring of the relation between capital and labor’, which ‘radically changes the distribution of capital and income’ (2012a, pp. 341–344).

It is questionable, however, whether a shift in the focus of taxation from income to wealth amounts to a shift from redistribution to predistribution. In what sense is the diffusion of privately owned productive resources through the progressive taxation of accumulations of inherited wealth any less redistributive than the progressive taxation of incomes? It might be suggested that what makes this kind of tax-shift a move towards predistribution is its capacity to empower less advantaged citizens by making them less dependent on both the welfare benefits funded by redistributive taxation and the wages offered by employers. By providing all citizens with access to capital as of right, predistribution strengthens the bargaining position of labour against capital, thereby placing market transactions within a structural context which is likely to generate much fairer and less inequitable distributions of opportunity, status, and income. This, however, would seem to re-assert what is in question – namely, the sense in which strengthening the bargaining positions of workers by providing them with access to capital as of right constitutes a predistributive rather than a redistributive approach to institutional reform. One might just as easily assert that the diffusion of privately owned property which is the sine qua non of the POD requires the large-scale and ongoing redistribution of wealth through the progressive taxation of large accumulations of property.[6]

It seems to me that the only way in which to make sense of the distinction between redistribution and predistribution is to refer back to the original meaning of the idea of predistribution as it was expressed by James Robertson.[7] Robertson introduced the idea as an approach to progressive institutional reform which seeks to enhance the substantive opportunities of less advantaged citizens by sharing and providing all citizens with access to ‘the value of essential inputs to economic activity’. By reversing ‘the private “enclosure” of common resources on which so much conventional economic development has been based’, progressive predistribution would address ‘the underlying causes of economic injustice, inequality, and exclusion’, and would therefore be ‘enabling’ rather than ‘dependencyreinforcing’ (Robertson, 2000). The ‘common resources’ which Robertson had in mind were the rental value of land and the value arising from the issuing of new money (Huber and Robertson, 2000; Robertson, 2000). In his view, both sources of value constitute economic rent which can be fully taxed in order to allow for significant reductions of economically damaging taxation imposed on ‘earned’ income, or for the funding of a universal basic income (Robertson, 2000).

In my view, it is in Robertson’s reference to ‘the value of essential inputs to economic activity’ that we find the root of the distinction between redistribution and predistribution. The root of this distinction is not so much in the idea that the private appropriation of the value derived from these essential inputs generates private property which is unearned, nor in the idea that the socialization of this value would be enabling rather than dependency-reinforcing. The root of the predistribution/redistribution distinction is rather that the ‘inputs to economic activity’ in question – land and the right to issue new money – are indeed essential to economic activity, and are not created by human labour. As we saw in Chapter 3, if rights to the natural and social advantages attached to land are protected unconditionally, then those who acquire these rights – private landowners – are empowered and incentivized to reduce the amount of land available for the purposes of productive economic activity, thereby forcing workers and capitalists to use land more intensively, and preventing them from raising the marginal productivity of their labour and capital. The subsequent increase in the marginal productivity of land causes rent to rise as a proportion of total output, and wages to fall. The private appropriation of the rental value of land also means that a significant part of the value of privately created property must be socialized in order to fund the core functions of the state.

I argued in the previous section that this socialization of privately created property amounts to regressive redistributive taxation which transfers privately created property from the less advantaged landless to the more advantaged landowners. What I want to argue now is that this regressive redistribution of privately created property is a direct consequence of the regressive predistribution of the rental value of land. Since land is an essential input to productive economic activity rather than an output of such activity, the distribution of the rental value of land is prior to the economic activity to which the land itself is an essential input. There is therefore a meaningful sense in which the rental value of land can be said to be either regressively or progressively predistributed: if rent is privately appropriated, then it is regressively predistributed; if it is socialized, then it is progressively predistributed. The regressive predistribution of the value of land constitutes a violation of market freedom, while the progressive predistribution of this value is essential to the effective protection of this form of freedom.

Since the factor of production which we refer to as ‘capital’ is created by human labour, capital goods must be categorized as outputs of economic activity, rather than as essential inputs to economic activity. As outputs of productive economic activity, capital goods are distributed subsequent rather than prior to the performance of this activity. There is therefore no meaningful sense in which the value of capital can be said to be regressively or progressively predistributed. The value of capital – which is privately created – may be regressively or progressively redistributed either as a consequence of the regressive predistribution of the rental value of land, or through the imposition of redistributive taxation. This is the case even with regard to ‘unearned’ capital which is privately owned by a person who cannot be held in any way responsible for its creation – say, the beneficiary of a large bequest. Though such wealth might indeed be ‘unearned’, its distribution is nevertheless subsequent to the economic activity from which it was created, so that to transfer all or part of its value to another person would be to redistribute this value. Though it might be entirely justifiable, such a redistributive transfer would constitute a violation or restriction, rather than an enhancement, of market freedom.

Unlike the socialization of the rental value of land, then, the progressive taxation of large accumulations of wealth (whether inherited or otherwise acquired) in order to generate the diffusion of privately owned productive resources – the sine qua non of the social democratic Meade/Rawls version of the POD – is not a predistributive mechanism. I would like now to argue that this key difference between the two institutional mechanisms has some relevance to the primary question being addressed in this section – whether the core institutions of the market democratic POD are essential features of a just liberal society of free and equal citizens, or whether they can be replaced by interventionist redistributive mechanisms. I shall argue that the socialization of rent is an essential institutional feature of a just liberal society precisely because it is a predistributive rather than a redistributive mechanism. And while I shall draw no firm conclusions in relation to the secondary question addressed in this section – whether and to what extent the socialization of rent must be supplemented by the implementation of interventionist redistributive mechanisms – I do want to suggest that the interventionist redistributive character of these mechanisms should lead progressives to adopt a more cautious attitude to the prospect of their implementation.

As we have seen, the diffusion of privately owned capital that characterizes the social democratic POD requires the imposition of progressive taxation on large accumulations of wealth, and the investment of public revenue in some sort of sovereign wealth fund which will generate a stream of non-wage income or capital stakes for all citizens. Classical liberals will of course argue that any such attempts to intervene in the free market system in order to redistribute private property will be counter-productive, resulting in less efficient investment of capital goods and less investment in capital formation. The inefficient investment of a smaller amount of capital, it will be argued, would harm the interests of less advantaged members of society by reducing their incomes and unnecessarily restricting the substantive opportunities available to them.

While I would certainly argue that we should avoid jumping too quickly to this conclusion, I would also argue that the implementation of the interventionist redistributive measures characteristic of the social democratic POD against a background context of privately appropriated rent is much more likely to backfire than the implementation of such measures against a background of socialized rent. If a major part of the problem with which we are dealing consists in the inefficiencies, exploitation, and regressive redistributive taxation that result from the regressive predistribution of essential inputs to economic activity, then surely it is reasonable to suppose that the most effective initial response to this problem would be to eliminate the inefficiencies, exploitation, and regressive redistributive taxation by altering the predistribution of essential inputs to economic activity. The proponents of the socialization of rent would argue that a fair predistribution of the rental value of land occurs when private landowners compensate their fellow citizens in proportion to the rental value of the land to which they claim exclusive access. This then prevents private landowners from exploiting the landless by reducing the amount of land available for the productive purposes of the landless, and at the same time socializes the rental value of land to the benefit of all citizens, thereby allowing for the elimination of the regressive redistributive taxation that transfers privately created property from the less advantaged to the more advantaged.

The implementation of the interventionist redistributive measures characteristic of the social democratic POD against a background of a deeply regressive predistribution of the rental value of land would exacerbate any distortions and inefficiencies which such measures would in any case generate. Making the rental value of land accessible to all citizens – whether in the form of public services or some kind of citizen income – will not reduce productivity, since both privately appropriated rent and financial capital are much more likely to be ‘invested’, entirely unproductively, in rising land values than in productive enterprise, if rent is not socialized (Gaffney, 1994, pp. 65–67). By contrast, making capital accessible to all citizens through interventionist redistributive taxation, thereby providing more people with the opportunity to take risks is just as likely to reduce productivity as it is to enhance it, since risky capital investment, which such redistribution would encourage, often does not pay off.

Moreover, since the socialization of rent will bring sites into production which would otherwise lie idle, this predistributive reform will incentivize both the formation of new capital and the utilization of existing capital (in the form of buildings and plant located on previously idle sites). The danger is that the imposition of high rates of progressive taxation on large accumulations of capital would generate distortions and inefficiencies either by resulting in the transfer of moveable capital abroad, or by discouraging the formation of new capital. The latter distortion could occur if those who would previously have been in a position to transfer their accumulations of capital to a single person of their choice decide, in the knowledge that their chosen beneficiary will not be permitted to retain more than a certain amount of what they receive, to consume their capital rather than transfer it tax-free to a large number of beneficiaries. The former distortion applies in particular to financial capital which can be shifted without much bother to an overseas tax haven. A further danger is that a high rate of progressive taxation imposed on large accumulations of capital could somehow be passed on by the owners of this capital in the form of higher prices charged to the consumers of goods produced by capitalintensive industries, or lower wages paid to workers employed by such industries. As we saw in Chapter3, the socialization of rent through the imposition of LVT creates none of these distortions and inefficiencies. Land cannot be shifted abroad, and a tax on its rental value can neither discourage its efficient utilization, nor be passed on by landowners to consumers, employees, or tenants.

All of this suggests that the progressive predistribution of the rental value of land – with all of the opportunity-enhancing effects that this will generate – is an essential precondition of any attempt to make private property accessible to all citizens by imposing progressive taxation on large accumulations of capital. The rental value of land having been fairly predistributed, the extent and nature of any necessary additional progressive institutions can then be determined. It is important to emphasize that the arguments that support the socialization of rent should not necessarily lead us to reject the implementation of any interventionist redistributive measures once rent has been socialized. For example, the idea that the imposition of conventional taxation (that is, taxes imposed on incomes, payrolls, consumption, value added, and so on) against a background of privately appropriated rent has a negative impact on economic activity at the extensive and intensive margins of production should not lead us to suppose that any kind of interventionist redistributive taxation would necessarily have such an effect, irrespective of the predistributive background against which it is imposed. With rent socialized and the taxation of payrolls, consumption, and low incomes significantly reduced or eliminated, the progressive taxation of higher incomes and large accumulations of property would not necessarily have a harmful effect on the margin of production, since the incomes and accumulations of wealth which would form the base of such taxation are likely to be concentrated in intra-marginal locations.

The progressive taxation of high incomes or large accumulations of wealth might therefore be implemented as an interventionist redistributive supplement to the progressive predistribution of the rental value of land, but not as an alternative to this essential market democratic institution. It is also important, however, not to underestimate the progressive impact that the socialization of rent would itself be likely to have. There are a number of ways in which the socialization of rent may reasonably be expected to achieve – albeit more indirectly – the enhancements of the substantive opportunities of less advantaged citizens that the interventionist institutions of the social democratic POD are intended to achieve. The essence of the social democratic POD is that with the private ownership of capital diffused among the entire population, even the least advantaged members of society would have access to income derived from the ownership of capital, and would cease to be entirely dependent on wages earned from marketing their labour. The economic independence generated by this income from capital would significantly strengthen the bargaining positions of the less advantaged, which in turn would greatly enhance their substantive opportunities and social status, providing them with options which they do not have in contemporary liberal societies. For example, workers will find themselves in a much stronger position to set up cooperative enterprises over which they are able to exercise democratic control, or to engage in entrepreneurial economic activity (Thomas, 2016, pp. 352–353).

I have already remarked that what appears to be a relation of dominance of capital over labour is often in fact a relation of dominance of land over labour and capital. This dominance arises from the nature of land as a distinct factor of production: private landowners enjoy immense bargaining power over the suppliers of labour and capital because land neither depreciates (like capital) nor starves (like labour), and because access to land is essential to productive economic activity (Gaffney, 1994, p. 64). I have also suggested that even when there is genuinely a conflict between capital and labour, this conflict is often one which is greatly exacerbated by the alliance of capital with land. The power of capital is massively enhanced when landowners and capitalists are one and the same, and when taxation bears more heavily on labour than it does on both land and capital.

In these circumstances, the dominance that landowning capitalists are able to exercise over landless labour and capital often results in the oligopolistic domination of industries by a small number of very large firms (Hodgkinson, 2008, pp. 57–70). Perhaps the best, or at least most familiar example of this phenomenon is that of the large supermarket, which is able to make supernormal ‘profits’ as a result of its private appropriation of the rent attributable to the site on which it is located. Unlike firms which are tenants paying a full rent for the sites on which they are located, firms which own the freeholds of their sites receive factor incomes both qua producer and qua landlord, and can therefore cut prices and absorb the subsequent fall in receipts out of their rent, even if they are making zero normal profits, or indeed losses (ibid., pp. 65–68). Such freeholder oligopolists are thereby able to erect a powerful barrier to entry into their industries: ‘a shock-absorbing income enabling them to undercut all potential entrants, either because the latter will have to set a price yielding the rent payable to a landlord, or because the entrant has to purchase a freehold initially’ (ibid., p, 65).

Thus, the geo-liberal view is that the power of capital over labour is very much a function of the power of landowners over the landless, though the latter is often far less obvious and transparent than the former.[8] A predistributive shift in the burden of taxation from productive economic activity to the rental value of land would break the union of landowners and capitalists, thereby greatly reducing the power of the latter in respect of labour, and, while not eliminating all conflict between capital and labour, nevertheless removing many barriers to entry[9] and going a long way towards levelling the playing field.[10]

In a market democratic POD, less advantaged workers would therefore find themselves in a much stronger position to take control over their lives, whether by organizing their workplaces along democratic lines, working on a self-employed freelance basis rather than as employees, or reducing the amount of time spent engaging in productive economic activity. We might say that the macro-level restructuring of the relationship between landowners and producers will radically change the distribution of capital and income. Just as we should not jump to the conclusion that the imposition of progressive redistributive taxation would necessarily be counterproductive, so also we should not assume too hastily that such interventionism would be necessary in the institutional context of the market democratic POD.[11] This line of argument becomes even more forceful when we take into consideration the implementation of other progressive predistributive features of the market democratic POD. These I discuss in the next section.

Money and Banking in a Market Democratic Society

The Nationalization of Money

The implementation of measures designed to ensure that a liberal society’s monetary and financial systems operate in the interests of all members of this society, facilitating efficient and productive economic activity rather than generating large monopolistic ‘something-for-nothing’ gains for a small minority, is undoubtedly an important progressive predistributive mechanism. Robertson argues that newly issued money is, like land, an essential input to economic activity, the value of which should be ‘treated as public revenue’ rather than privately ‘enclosed’ (2000, p. 2). It is difficult to see how one could avoid following him in identifying newly issued money as an essential input to productive economic activity, at least within the general context of modern liberal societies in which this money is designated by the state as legal tender, a certain amount of which citizens are obliged to obtain in order to meet their tax liabilities. The demand for such money that this obligation creates then ensures that it is highly valued as the means of payment which is accepted by the producers of goods and services, and in this way underpins, and is an essential input to, productive economic activity.

It is also difficult to see how one could reject the idea that the value of this essential input to productive economic activity is a ‘common resource’, at least for the citizens of the political territory within which this currency is the accepted medium of market exchange. The value of newly issued money arises from legal tender laws and from its designation by the government as the currency in which taxes must be paid, not from any productive activity privately undertaken by those who find themselves in a position to issue new money (without engaging in illegal forgery or counterfeiting). This particular common resource, however, is clearly one which is monopolized by those to whom the state has granted the exclusive right to issue new money – that is, the owners of the commercial banks which have obtained licences to create money by extending credit. As the United Kingdom Bank of England has recently made clear, most of the money[12] in circulation in modern economies like that of the United Kingdom is created simply by banks making loans to customers (McLeary et al., 2014, p. 2). In other words, deposits are not created by households providing savings to banks, which then, acting as intermediaries between savers and borrowers, lend these out to borrowers at interest, but by banks crediting the accounts of their customers with money created from nothing. In this way, the value of newly issued money – a common resource – is monopolized by those who have access to the large stocks of capital needed to obtain a licence from the state to create money by issuing it as interestbearing debt.

Robertson argues that this monopolization of the value of newly issued money amounts to a multi-billion pound subsidy provided by the state to the banks (2012, p. 99). This subsidy derives from the transfer of ‘seigniorage’ – the profit made when the issuer of currency pockets the difference between the value of this currency and the cost of issuing it – from the state to the commercial banks (ibid., p. 9). As Huber and Robertson explain, the transfer of seigniorage to commercial banks

enables them to cream off a special profit. They lend the money to their customers at the full rate of interest, without having to pay any interest on it themselves. So their profit on this part of their business is not, say, 9% credit-interest less 4% debit-interest = 5% normal profit; it is 9% credit-interest less 0% debit-interest = 9% profit = 5% normal profit plus 4% additional special profit.

(2000, p. 31)

And on the other side of a subsidy, of course, there is always a tax. While the interest charged by the banks for the money they create is paid directly by the original borrowers of this money, the prices charged for goods and services for the production of which this money was borrowed must include the cost of this interest, so that anyone who buys any of these goods and services is indirectly paying a fee – or privately collected tax – to the banks which have charged interest on money created from nothing (Robertson, 2012, p. 102). Alternatively, we might say that the taxation of productive economic activity which is necessitated by the failure to socialize the value of newly issued money is unfair taxation which benefits the bankers at the expense of the rest of society (Huber and Robertson, 2000, p. 40). This amounts to regressive redistributive taxation which transfers property from the more advantaged to the less advantaged. Either way, the monopolization of the value of newly issued money constitutes a regressive predistribution of this essential input to productive economic activity, and a serious violation of the market freedom of the majority of the citizens of the societies in which the monetary system takes this form.

As a solution to this problem, Robertson proposes a two-part reform which amounts essentially to the nationalization of money – though not of banking. The first part of the reform would:

transfer to nationalised central banks like the Bank of England the responsibility for creating, not just banknotes and coins as now, but also the overwhelmingly large component of the supply of public money consisting of bank account money mainly held and transmitted electronically. Having created the money, the central bank will then give it to the government to spend it into circulation on public purposes under standard democratic budgetary procedures.

(Robertson, 2012, pp. 111–112)

The second part of the reform would prohibit any other person or organization, including commercial banks, from creating money by extending credit, in the same way that the forging and counterfeiting of coins and banknotes are prohibited (ibid., p. 112). In this way, Robertson argues, the value of newly issued money can be shared equally among all citizens, and the financial services industry – with its exclusive privileges removed – can be made much more competitive and efficient. Such a reform would constitute ‘a shift from redistribution that aims to correct the outcomes of a badly organized and managed money system, to predistribution that organizes a money system better designed to meet its purposes’ (ibid., p. 140).

However, while we can certainly endorse the idea that the private appropriation of the value of newly issued money constitutes a form of regressive predistribution, it is not so clear that we should endorse the particular solution to this problem proposed by Robertson. Although proposals for monetary reform similar to Robertson’s have recently been attracting a considerable amount of support, the idea of nationalizing the supply of money remains very much on the fringes of debate, and is much less likely to be endorsed by classical than by social liberals. Many of the former would be more likely to show an interest in an entirely different kind of monetary reform, one which involves more or less the opposite of the reform proposed by Robertson – the denationalization of money.

The Denationalization of Money and Banking

In Denationalization of Money, published in 1976, Friedrich Hayek proposed just such a reform, arguing that the only way to prevent governments from attempting to generate revenue by inflating and thereby debasing the official currency was to ‘do away altogether with the monopoly of the government supplying money and to allow private enterprise to supply the public with other media of exchange it may prefer’ (2007 [1976], p. 26). Hayek argued that since this monopoly was the main cause of ‘the chief blemish of the market order … its susceptibility to recurrent periods of depression and unemployment’, its removal would create the competitive conditions in which stable currencies provided by private enterprise would prevent ‘both excessive stimulation of investment and the consequent periods of contraction’ (ibid., p. 14).

It might be suggested that the denationalization of money provides a progressive predistributive alternative to Robertson’s proposal for seigniorage reform. If the problem is that the value of newly issued money – a common resource which is an essential input to productive economic activity – has been monopolized by commercial banks, then might a possible solution to this problem be to liberalize the banking system so that the ‘common resource’ whose value has been monopolized is no longer an essential input to economic activity, and therefore no longer a common resource? This is what is entailed in the idea of ‘free banking’, in which there has been increasing interest since Hayek made his proposal in the late 1970s (Selgin, 1996; White, 1999). In a free banking system, there would be no restrictions on the kinds of institutions which can offer banking services, and therefore no restrictions on the kinds of institutions which can create money by extending credit (Foldvary, 2008). Since competition among the issuers of new money would eliminate the ‘special profits’ made by highly regulated commercial banks issuing a government-backed currency, the interest rates charged by the issuers of new money would reflect the stability of the currency being issued, as well as the public demand for stable currency, rather than the monopolization of the right to issue money for which demand is guaranteed (ibid.). The regressive redistributive taxation resulting from the regressive predistribution of the value of newly issued money would therefore be eliminated.

I cannot here provide a detailed discussion of all of the issues relating to this hugely complex area of study, nor draw any conclusions concerning the direction in which monetary institutions in liberal societies should be reformed – doing so would require me to double the length of this book. Huber and Robertson argue that since the proposal to denationalize the supply of money is unlikely to be widely accepted for many years, and will take many more years to implement if it ever is accepted, this proposal does not undermine their own proposal for seigniorage reform. But this argument probably applies just as strongly to Huber and Robertson’s idea of seigniorage reform as it does to the idea of free banking. Both are highly unlikely to be endorsed widely enough to be implemented any time soon.[13] This is one reason why I have focused in this book on the aspect of progressive predistribution that relates to shifting the burden of taxation away from productive economic activity and on to the rental value of land.

Another reason for my focus on the socialization of rent, however, is that this is almost certainly the most important of the two predistributive reforms, both from the perspective of enhancing the protection of market freedom, and from that of enhancing the substantive opportunities of the least advantaged members of society. In the absence of the socialization of at least a substantial proportion of the rental value of land, the progressive impact of monetary reform would be very limited (ibid.). Only the most severe restrictions of the activities of banks and other financial institutions would prevent them from exploiting the many opportunities to invest in rising land values which would be available to them. The imposition of such restrictions on financial institutions would be likely to greatly impede their performance of the socially useful activities of providing credit for the purposes of economically productive enterprises and entrepreneurs.

By contrast, in the absence of any significant monetary reform, the socialization of rent would greatly restrict, or perhaps even eliminate, the opportunities available to financial institutions to exploit the economically productive by investing in rising land values, since the capital value of land is inversely proportional to the rate of tax imposed on its rental value. The lower the selling price of land, the less money commercial banks can create as mortgages, and the less interest they can extract from the productive economy. It is on the implementation of this particular predistributive reform, then, that progressives should focus their attention and energies. It is to issues relating to the implementation of the socialization of rent that I turn in the next section.

Practical Implementation

Shifting the Burden

In the previous section I suggested that the practical implementation of any sort of radical monetary reform is difficult to envisage in the near future. Might the same thing be said about the practical implementation of the radical fiscal reform which is the subject of discussion in this book – a shift in the burden of taxation from productive economic activity to the rental value of land? In my view, the answer to this question is ‘No’. Part of the reason for this is that many of the institutions and practices needed to socialize rent already exist as part of the basic socio-economic structures of contemporary liberal societies. As Henry George suggested back in the late nineteenth century, the proposed reform can be implemented largely using existing institutions, together with the skills and expertise of those currently operating within them (1920 [1879], Bk 8, Ch. 3). Another part of the reason is that the proposed shift in the burden of taxation can, and probably should, be gradual and cautious, rather than sudden and swift. A series of smaller reforms and adjustments are presumably easier to implement than one radical transformation of existing practices.

There is still, however, no question that the practical implementation of the proposed tax-shift will be extremely challenging, with numerous problems arising as a result of the unanticipated LVT liabilities to which many people will find themselves subject, and the significant transformations in the value of various kinds of assets which will occur. There will also, of course, be the problem of the reactionary resistance to the process of reform which we can expect from the many powerful organizations with strong interests in the private appropriation of rent. One thing which might nevertheless give us reason for optimism is the probable diminishing marginal utility of the socialization of rent. That is to say, that once a substantial proportion of rent – say, 70 or 80 per cent – has been socialized, it is likely that the benefits to be gained from socializing the remainder will be outweighed by the cost of doing so, at least until we have become sufficiently familiar with the practices and processes involved to develop less costly ways of implementing them. In Chapter 3, I argued that the protection of market freedom requires that as much as is feasible of the rental value of land be socialized. In the remainder of this section I shall outline a process of reform, within the specific institutional context of the United Kingdom, by which this aim could be largely achieved within two or three decades. While my focus is on this particular institutional context (it being the one with which I am most familiar), I believe that similar processes could be implemented in other institutional contexts typical of contemporary liberal societies, such as those of the United States and the countries of the European Union.[14]

Like other liberal societies, the United Kingdom has a number of property taxes (in the narrow sense of the word ‘property’) in addition to taxes imposed on incomes, payrolls, consumption, corporate profits, capital gains, and so on. The two main forms of property tax are the Council Tax, which applies to residential property, and the National Non-Domestic Rates, which applies to retail, commercial, and industrial property. Both of these taxes are ‘composite taxes’ that bear on the value of capital (in the form of buildings) as well as on the value of the sites on which this capital is located. Both taxes impose liabilities that fail accurately to reflect the value of the sites which form part of their base, and which fail to incentivize the productive utilization of sites which are located in areas zoned for residential and commercial development. Both taxes could relatively easily be adjusted so that their bases consist predominantly in the rental value of residential and commercial land, so that the liabilities that they impose reflect much more accurately the value of the sites that constitute their bases, and so that the productive utilization of residential and commercial sites is encouraged rather than discouraged.

Consider first the Council Tax (CT), which was introduced in 1993 in the wake of the disastrous attempt by the Conservative government led by Margaret Thatcher to impose a poll tax (the ‘Community Charge’) as the principal form of local taxation. The CT is imposed on the occupiers of residential properties who pay a rate of tax which is partially proportional to the capital value of the properties in which they live (single occupiers receiving a 25 per cent discount). The tax rates are determined according to a banding system consisting of eight bands (A–H) in England and Scotland (nine in Wales), relating to values as assessed in 1991 by the Valuation Office Agency. In England, band A covers buildings of the lowest value and represents the lowest tax rate, while band H covers buildings of the highest values and represents the highest tax rate. However, the tax is often (rightly) criticized as being highly regressive, since the amounts of tax paid by the occupiers of band H properties typically pay only about three times the amounts typically paid by the occupiers of band A properties, even though band H properties can be more than ten times as valuable as band A properties. Moreover, the percentage of property value paid in tax declines as the value of taxed properties rises, so that the tax paid by the occupiers of the most valuable properties is a far smaller percentage of the value of their properties than the tax paid by the occupiers of the least valuable properties.

A possible first step in the process of reform, then, would be to increase the number of bands so that the tax burden is a more accurate reflection of the assessed capital value of each property. This could be done in a revenue-neutral way so that the same revenue is generated from the tax as before, but with the burdens more accurately reflecting the different property values. The next step would be to revalue each property on the basis of the land value alone, disregarding the value of buildings. This would be a fairly costly procedure, partly because of the amount of time since the original valuations were made. Subsequent revaluations, however, would be much less costly, with recent data from sales and rentals providing the basis for accurate valuations. Moreover, the valuation process would be far easier and less subjective than it would be with the value of buildings taken into account. Once a property has been identified as, for example, a two bedroom semi-detached house, or a three bedroom detached house, or a one room flat, or whatever, the values of properties in each such category can then be determined according to the area within which they are located, with no need to consider the state of repair, the quality of construction, how well or badly decorated or insulated each property is, and so on. The areas according to which each category of property is valued could be quite small – say, UK postcode districts – or larger, depending on the desired trade-off between accuracy and ease of assessment.

With properties revalued in this way, the tax could then be extended to cover sites which have been granted permission for residential development, but which have not yet been developed[15] (perhaps because they have been ‘banked’ by the developer which owns them), as well as vacant buildings.[16] Other property taxes which are economically distortionary and destructive (for example, those imposed on transactions, such as the Stamp Duty Land Tax) could then be abolished or phased out, with the reformed CT rates increased to generate the lost revenue. The tax liability might then be transferred from the occupiers of the taxed sites to the owners of these sites (who will in many cases of course be one and the same). Even this relatively modest set of reforms would be likely to have a significant progressive impact, greatly increasing the availability of residential land and reducing capital values, particularly in high value locations.

It would then be necessary, however, to transform the base of the tax into annual rental values (ARVs), which, unlike capital values, would not decline if rates were subsequently increased. There are various methods by which capital values can be translated into ARVs, and I cannot provide a detailed account of how this might be done. The main point is that the base of the tax is the difference between the ARV of any given property (site plus building) and the ARV of the same kind of property located in the cheapest area (the marginal location). This difference constitutes what we might call the ‘Annual Site Premium’ – the element of the rental value of a property which derives solely from its location (Wadsworth, 2013a). For example, if the average rent for a three-bedroom semi-detached house in a given area is •10,000 per year, while the average rent for the same category of property in the cheapest area is •4,000 per year, then the Annual Site Premium for the property that rents for •10,000 is •6,000 per year (Wadsworth, 2013a). All three-bedroom semis in this area are then allocated to the appropriate band and taxed at a certain percentage of •6,000 per year. The same principle applies to all categories of dwellings, as well as to sites with planning permission for a given category of dwelling. In this way, the Annual Site Premiums of all residential sites can be roughly determined and a tax rate applied accordingly. If Annual Site Premiums are even only roughly determined by this process, the situation is still immeasurably better than it is under the current arrangements, with tax rates bearing very little relation to capital values, particularly with respect to sites in higher value locations.

The National Non-Domestic Rates (NNDR), which are set as a proportion of the estimated rental value of non-domestic properties (shops, offices, warehouses, factories, and so on), are more similar to LVT than the CT, and would be even more easily reformed. The principal changes which would need to be made would be the extension of the tax base to vacant land, revaluations carried out on an annual or bi-annual basis instead of every five years, and, most importantly, the exclusion of buildings from the tax base (Adam and Miller, 2014, pp. 258–262). With the NNDR and CT bases extended to vacant land, no longer applying to buildings, and reflecting more accurately the rental value of residential and commercial sites, the amount of revenue generated by these taxes could then be gradually increased, and the rates of more economically destructive taxes reduced accordingly. Estimates of the annual rental value of residential and commercial land in the UK range from just under •84 billion (Meakin, 2016, p. 202) to well over •200 billion (Jones and Wilcox, 2015, p. 7). Whether the actual rental value is closer to the higher or lower of these figures, the socialization of a substantial proportion of it would make room for significant reductions of economically destructive taxes such as VAT and employers’ National Insurance contributions (a form of payroll tax). This shift in the burden of taxation would then generate efficiencies which would be likely to raise the rental value of land, thereby increasing the size of the LVT base, at the same time as reducing the cost of government by reducing the need for welfare benefits. It seems plausible to suppose that similar processes of the reform of existing property tax systems could be implemented in other liberal societies, so that the rental value of land might become the principal tax base within a few decades.

It might be thought that the implementation of a form of taxation that relies so heavily on assessments of land rental values will be likely to generate a great deal of corruption, or at least the possibility of corruption, within the agencies involved in the making of valuation assessments, the administration and enforcement of planning policies, and so on. In any workable LVT system there will always be numerous sites exempted from the tax, such as parks and nature reserves, government land and buildings, social housing, land utilized by charities, and so on. In general, the larger the number of sites that are exempted from taxation, the greater the number of loopholes that will be available to be exploited, and the higher the probability of corruption and evasion. A large increase in the tax burdens borne by the owners of valuable sites would surely increase the likelihood that some of these owners will look for opportunities to exert influence over decision-making processes that affect the zoning of land and the assessment of site values.

However, most of the agencies involved in these processes already wield a considerable amount of power, not always as transparently and accountably as might be desired in a liberal society. In the United Kingdom, for example, unelected planning officers determine which sites will be assigned permission for residential or commercial development, their decisions and reasoning often lacking in transparency and openness, and very often resulting in huge ‘windfall’ financial gains for private landowners and property developers. If the transition to LVT brings openness, transparency, and democracy to what will always be – in any conceivable institutional context – extremely powerful decision-making institutions, then this would surely be a good thing. When we then consider the opportunities for avoidance and evasion available to those on whom income, corporation, and sales tax burdens are imposed, the possibilities for corruption in relation to LVT seem no more problematic.

It seems reasonable to conclude, then, that the practical implementation and enforcement of LVT, though undoubtedly difficult and challenging, will not be expensive or problematic enough to provide a reason not to proceed with it. And it is certainly plausible to suggest that the potential gains to be made from shifting the burden of taxation on to the rental value of land are so enormous that the case for a systematic effort by the government to design a feasible process of reform is overwhelmingly strong (Mirlees et al., 2011, pp. 377–378). However, the process of transition from a system in which the rental value of land is largely privately appropriated to one in which it is largely socialized is bound to create a variety of special problems, the nature and severity of which will depend on the specific context within which the transition takes place. I shall conclude this section by considering some of the most likely transitional problems which might arise, and some of the solutions which might be found for them.

Transitional Problems

Though certainly not insignificant, the problems relating to the process of transition to an LVT-based system are perhaps less of a concern than those relating to the ongoing impact of LVT once the burden of taxation has been shifted (which I discussed in the section ‘Orthodox Laissez-Faire Capitalism versus the Market Democratic Property-Owning Democracy’ in this chapter). One reason for this is that such problems are indeed transitional – that is, of a temporary nature, becoming less challenging and problematic as the process of transition draws nearer to completion. Given the enormous progressive potential of the socialization of rent to radically enhance the substantive opportunities of less advantaged members of society, any problems likely to arise during the transitional phase would have to be extremely severe, and ultimately unsolvable, to provide a compelling reason to avoid embarking on the process of reform, or to abandon the process once underway. It is therefore important that potential problems are anticipated, and that effective solutions are suggested for the problems that are likely to arise. Transitional problems and their potential solutions must of course be examined in far more depth than is possible in this book, and the following is intended merely to indicate the kinds of questions which a more detailed enquiry would need to address.

Perhaps the most familiar set of issues raised by critics of the idea of LVT are those that concern the vulnerability of ‘asset-rich, income-poor’ individuals, often pensioners or those having taken early retirement, who own valuable residential sites which would attract a large LVT liability, but who lack the high income needed to meet such a liability. The major worry here is that vulnerable people on low incomes who have invested much of their earnings in the properties in which they live might be forced by the tax system to move away from their homes and communities, causing considerable stress and unhappiness. Another worry is that a sudden increase in the amount of tax for which the owners of valuable residential sites become liable might severely disrupt the long-term plans of people who have been working for 20 or 30 years to pay off their mortgages, with the intention of then working significantly fewer hours, perhaps even taking early retirement, so that they are able to pursue projects and adopt lifestyles that would have been impossible while they were paying off their mortgages.

There are various ways in which these concerns may be addressed. First, the transitional and therefore temporary nature of the ‘asset-rich, income poor’ problem must be emphasized. As the amount of economic rent that is socialized is gradually increased, and as the amount of privately created income and wealth that is socialized is gradually reduced, the capital values of residential properties will fall, while the profitability of productive enterprise will rise. More and more, therefore, people will choose to invest their (higher) incomes in (more profitable) stocks and shares, and other productive investments, rather than in the residential land upon which their houses stand. By the time LVT reaches its highest level, and the taxes borne by production and employment reach their lowest levels, most incomes may reasonably be expected to be high enough to cover a high LVT liability, as home-owners have less mortgage interest to pay, and as conventional tax burdens decline (Coats, 2009, pp. 69–70). In other words, once the rental value of land is fully socialized, the land assets that people choose to acquire are much more likely to match the incomes that they can reasonably expect to earn. Those who fail to match their consumption of land with their ability or willingness to generate the income needed to compensate their fellow citizens for their exclusion from this consumption may reasonably be expected to take action to bring their incomes and consumption levels into line, either by increasing their incomes or by reducing the value of the land that they consume (or prevent others from consuming). There would of course be scope for the provision of periods of LVT exemption for those temporarily unable to meet their liabilities due to unemployment, ill health, and so on. In addition, there is likely to be a role for private insurance designed to protect people against the prospect of unexpectedly rising rental values or falling incomes, and there might also be a role for the capping of LVT increases.[17]

However, during the period in which the tax burden is being shifted, the ‘asset-rich, income-poor’ problem is very real, and must be addressed. The problem will be addressed differently in the differing cultural, political, and institutional contexts within which it arises, depending on a range of factors including the varying proportions of populations who are homeowners and yet on low incomes, varying judgements concerning the correct balance of competing interests among the citizens of society, and so on. If the number of low-income owners of valuable residential sites is small, then it may be feasible simply to exempt such people from paying the tax, or to provide a pension or other credit of some kind with which the tax can be paid (ibid., p. 69). It must be emphasized, however, that for every LVT exemption, there will be low-paid workers who have to pay higher taxes and endure higher living costs as a result of these exemptions, since the larger the number of valuable sites which generate no revenue from LVT charges, the larger the number of revenue that must be generated from economically damaging taxes on production and employment, or from higher LVT charges on other valuable sites. It is not clear why the interests of asset-rich income-poor pensioners should take precedence over those of hard-working families on low incomes, given that the asset-rich income-poor usually have the option of ‘trading down’ to smaller, less valuable residential sites, taking in lodgers (perhaps family members), or receiving financial support from family members.

With these considerations in mind, perhaps the fairest and most politically acceptable solution would be to provide all pensioners with the option of deferring payment of LVT charges until sale of their property (or transfer of their rights of exclusive access to the land that they own). This, of course, would significantly reduce, and perhaps even eliminate, the capital value of the sites in question, thus transforming these particular LVT liabilities into a form of inheritance or estate tax liability. It would also be possible to combine these different approaches, so that a pension credit covers the cost of the LVT charge up to a certain limit, while the remaining LVT charge above this limit is deferred until sale of the property or death. Whatever the precise solution that is adopted in each society, it is surely obvious that the interests of a relatively small number of asset-rich income-poor households cannot be assigned absolute priority over the interests of a much larger number of asset-poor income-poor households, whose market freedom has been violated and whose substantive opportunities are severely restricted. It must also be acknowledged, however, that it may be necessary to provide more generous protection to the asset-rich income-poor than principles of justice and fairness would strictly allow, if this is what it takes to make the transition to an LVT system politically feasible.

Another set of issues that have been raised in relation to the transitional phase of the proposed tax-shift concerns the interests of those who have recently acquired holdings of land in the reasonable expectation that these holdings will remain taxed at a relatively low rate, and those who are in the process of acquiring land by paying off a mortgage. Might it simply be unreasonable to ‘change the goalposts’ by requiring the owners of valuable commercial and residential land to revise their plans so that they can be sure of earning enough income to pay an unanticipated[18] tax charge? And can it be fair to put home-owners currently paying off their mortgages in a position of ‘negative equity’, when the value of their land is reduced to less than the value of the portion of their mortgage attributable to this land (Hodgkinson, 2008, p. 327)?

In response to these concerns, it is important first to emphasize again the nature of the proposed tax-shift as a long-term process, the need for the gradual introduction of LVT in conjunction with the gradual reduction of taxes on employment and production, and the beneficial effect that reductions in taxes on production and employment would have for the majority of people. If the level of LVT is raised gradually enough, then investors in land values would have little to complain about, since just as those who work in the expectation of earning a wage or salary must be prepared for the possibility that taxes on their earnings might rise, so investors in land values must be prepared for the possibility that taxes on land values might rise. Indeed, investors in land values would seem to have less cause for complaint in the face of rising taxes on land values than workers would have in the face of rising income or consumption taxes, since land values are not generated by the owners of land, whereas wages and salaries are generated by those who work to earn them (ibid., p. 327). Moreover, since land values are created by the efforts and economic activity of all those engaging in the production and consumption of wealth – that is, by all fully cooperating members of society – then all fully cooperating members of society would be justified in feeling aggrieved if these values are not socialized.

With regard to the negative equity problem, part of the pro-LVT response is to point out that since only a small percentage of mortgage payers would find themselves in a position of negative equity (assuming that the level of LVT would be raised gradually), those forced into this unfortunate position by the introduction of LVT could be compensated with some sort of tax credit, but would in any case be paid more, taxed less, and be less likely to become unemployed as a result of the imposition of LVT (Coats, 2009, p. 69; Hodgkinson, 2008, pp. 327–329). It has also been suggested that the rate of LVT which applies to owner-occupied residential properties could in the transitional phase be lower than the rate which applies to other (non-exempt) land (Jones and Wilcox, 2015). A further possibility worthy of consideration is that banks could be compelled to ‘write down’ mortgages, not so that the home-owner is left with no mortgage at all to pay, but so that the mortgage interest payments reflect the reduction in the value of the mortgaged land (Wadsworth, 2013b).

More importantly, it must be emphasized that the problem of negative equity is something that is far more likely to arise in a society in which the majority of public revenue is generated from taxes on production and employment, and in which the rental value of land is largely privately appropriated. Indeed, since negative equity cannot arise in the absence of high house prices (residential land values) which then fall rapidly, it is evident that the most effective way in which to ensure that the prospect of negative equity will always be something for home-owners to fear is to keep the lion’s share of the rental value of land in private hands. The problem of negative equity is part of the wider problem of the extraction by banks of enormous amounts of rent in the guise of mortgage interest payments. By ridding us of the wider problem, the transition to an LVT-based system will provide a long-term solution to the former problem.

There are, of course, numerous other problems which might arise from the transition to an LVT-based system if the process of transition is not implemented with a sufficient degree of caution and care. For example, although one of the long-term effects of the socialization of rent would be a far less economically unstable world, in the short run, there might be a certain amount of instability if owners of large accumulations of capital who also happen to have significant vested interests in private landownership attempt to resist the introduction of LVT by withdrawing their investments. Further potential problems would be the effect of the socialization of rent on the performance of private pension funds, and on the economic viability of productive enterprises which appear to be ‘efficient’ and ‘productive’ only because a significant proportion of their ‘profits’ consist in imputed rent (Hodgkinson, 2008, pp. 333–334). In each of these cases, the problems in question will be less severe if the socialization of rent is implemented as a long-term process, perhaps taking two or three generations to become fully institutionalized, rather than as a sudden and severe shock. And if the progressive impact of the proposed shift in the burden of taxation is as profound as we have reason to think it will be, then the solutions to any problems which even the gradual implementation of the reform cannot prevent must surely be sought as a matter of the utmost urgency.

Notes

1

Of course, ‘Pigouvian’ taxes can be imposed on negative externalities, but such taxes will be unlikely to generate a substantial amount of revenue, since the aim is often to reduce or eliminate the negative externality which forms the base of the tax.

2

Thus, citizens may reasonably be expected to support themselves through the performance of some sort of productive economic activity (which would of course include child care), and will not find themselves in a position to rely on the productive contributions of others (unless they are unable to support themselves due to disability or some other incapacity). This is not inconsistent with the idea suggested in Chapter 4 that a modern liberal society must make room for ‘post-productivist’ lifestyles, since it is not productivism per se which may reasonably be expected of citizens, but rather the performance of productive economic activity sufficient to ‘pay one’s own way’ by those capable of doing so. This issue is somewhat complicated by the possibility that the public revenue generated by the socialization of rent might be more than enough to cover the cost of the core functions of the laissez-faire state, in which case the remainder would presumably be returned to citizens in the form either of an LVT ‘personal allowance’, or as a universal basic income. I shall assume that any such basic income would be insufficient to cover the full cost of living.

3

Such a scheme would be mildly redistributive since higher earners pay a larger amount of tax even though they pay the same proportion of their income as those on lower incomes.

4

This, indeed, is the current situation in the United Kingdom, after three decades or so of ‘home-ownerist’ policies of this kind (Osborne, 2016).

5

The near elimination of the stock of social housing in the United Kingdom since the mid-1980s has resulted in the adoption of the interventionist policy of providing ‘housing benefit’ to the landlords of tenants in receipt of welfare benefits. The cost of providing these ‘benefits’ was •27 billion in 2014/15, of which a substantial proportion went to private landlords (ONS, 2016).

6

In his contribution to the O’Neill and Williamson (2012b) edited collection Property Owning Democracy: Rawls and Beyond, Thad Williamson endorses a menu of tax-raising policies set out by the Institute for Policy Studies that includes new top rate income and capital gains taxes in addition to financial transactions and estate taxes, all of which would ensure that all citizens ‘have tangible (i.e., alienable) property, and enough of it to materially affect their life prospects and possibilities for exercising personal liberty’ by redistributing wealth (Williamson, 2012, pp. 226–229).

8

One reason why the power of landed interests is less obvious than the power of capital is that what appear to be the interests of capital are often in fact the interests of land disguised as capital – what are unquestioningly referred to as ‘profits’, ‘interest’, and ‘capital gains’ are often earnings attributable to the valuable sites on which productive (or seemingly productive) economic activity takes place, or on the security of which credit is extended (Gaffney, 1994, pp. 330–333; Hodgkinson, 2008, pp. 18–19).

9

For example, as well as improving access to land by reducing its capital value, the socialization of rent would also improve access to credit for less advantaged members of society, since banks and other financial services providers would no longer be incentivized and empowered to invest in land values by extending credit in the form of mortgages for the purchase of land, and would instead need to refocus their lending on productive enterprises which would have been over-looked had rent continued to be privately appropriated. Moreover, with the higher wages and lower living costs that would result from the socialization of rent, ordinary workers would be much more creditworthy than they would be with rent privately appropriated (Hodgkinson, 2008, pp. 299–300).

10

As Peter Barnes (2016) puts it, ‘virtuous rent’ (the collection of rent by not-forprofit trusts that represent all members of society equally) may be likened to a ‘trim tab’, the tiny flap on a ship rudder which turns the ship dramatically when moved only slightly:

Depending on how much of it is collected and whether it flows to a few or to many, rent can steer an economy toward extreme inequality or a large middle class … In other words, in addition to being a wedge (as Henry George put it), rent can also be a rudder. An economy’s outcomes depend on how we turn the rudder.

make sure that the productive side of the economy is in good shape; it should work through open competition and vibrant markets to raise the level of overall wealth, including that acquired by the least fortunate in society. Once that base is preserved, the scope of redistributive policies can be accordingly reduced, given that a large resource base is coupled with a lower level of need.

(Epstein, 2011, p. 148)

Of course, making sure ‘that the productive side of the economy is in good shape’ involves implementing market democratic progressive predistributive reforms which Epstein would not endorse.

12

Some 97 per cent as of December 2013, according to the Bank of England (McLeary et al., 2014, p. 2).

13

A less ambitious but more practically feasible short-term reform would be to introduce ‘limited purpose banking’, which limits limited liability financial institutions to the status of mutual funds (Kotlikoff, 2001). Perhaps the most effective short-term policy, however, would be to simply increase the rates at which recently introduced ‘bank levies’ are set. A bank levy is a tax imposed on the liabilities of banks whose total liabilities exceed some specified amount, say, •20 billion. Levies can therefore help to increase the number of smaller banks, and can be imposed at higher rates on more risky short-term liabilities. More scope for increasing rates would arise if taxes on incomes and payrolls were substantially reduced, since such reductions would reduce the amount of tax paid by banks.

14

Land value taxation already plays an important role in Australia, particularly at the state and local government levels (Wightman, 2013, p. 13) For a detailed analysis of the effects of recent reforms of the Australian Capital Territory property tax system, see ‘The First Interval: Evaluating ACT’s Land Value Tax Transition’ (Murray, 2016). The socialization of rent is also an important feature of the background institutions of Hong Kong (Purves, 2015) and Singapore (Haila, 2016). The ‘two-rate’ property tax, which imposes lower rates on the value of buildings and higher rates on the value of land, has been implemented in various American cities (Rybeck, 2011).

15

In 2015, it was reported that the nine biggest house-builders in Britain owned enough land for more than 600,000 houses, four times the total number of houses built in Britain during the previous year (Ruddick, 2015).

16

In 2015, the British Government recorded more than 600,000 empty homes in England (Empty Homes in England, 2015). In 2014, it was reported that more than 11 million homes lay empty across Europe (Neate, 2014).

17

Since the capping of LVT increases would be likely to generate a less efficient allocation of land, and therefore less efficient economic activity, the use of this mechanism in the interests of economic security would need to be balanced against other interests.

18

Of course, by the time any LVT-based reforms are implemented, any resulting tax liabilities will no longer be unanticipated. But any reduction in the value of land which results from the anticipation of the implementation of such a reform may itself be said to be unanticipated.

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Conclusion

The Socialization of Rent: An Idea Whose Time Has (Almost) Come?

In one sense, of course, the time for the implementation of the institutional reform discussed in this book – a shift in the burden of taxation from productive economic activity to the rental value of land – came a long, long time ago. From the very beginning of the evolution of private property institutions and the rise of centralized political authority, the ownership of land would have taken an entirely different form from the one with which we are now familiar if these institutions had evolved and developed as ‘spontaneous’ orders which serve no purpose other than that of facilitating the purposes pursued by those participating in them. Taxation – or rather, rent collection – would have arisen, not as the means by which the rich and powerful could oppress and extract resources from the poor in order to further enhance their wealth and power, but as the means by which the value generated by the provision of public goods and services could be recaptured, in order to cover the cost of their provision, and by which scarce resources could be efficiently allocated. But the institutions of property and political authority of course have not evolved freely and spontaneously, and the form of private landownership with which we are so familiar is perhaps the paradigm example of the distortion of this process by the systematic coercive extraction of resources from the rich and powerful to the poor and oppressed.

The result of this distortion is a form of socio-economic organization – the liberal democratic society – which is a sick and twisted version of what it might have been, and of what it might yet become. Wherever we look we see (if we have our eyes open) poverty, insecurity, over-work, underemployment, ill health (mental as well as physical), environmental destruction, pollution, mushrooming socio-economic inequality, and fear. Technological inventions and innovations seem more likely to worsen the situation than to improve it, and the old remedies of state intervention, regulation, and redistribution have lost a great deal of their former credibility. New progressive approaches have been devised, most of which turn out on closer inspection to be the same old interventionist mechanisms presented in a different language. Politics in liberal societies is becoming ever more divided and polarized, culminating in the election of a billionaire property tycoon as the new ‘leader of the free world’. Looked at from this perspective, it is certainly high time that the process of shifting the burden of taxation on to the rental value of land – the institutional reform that will have the most dramatic and far-reaching progressive impact – is set in motion.

There is another sense, however, in which the time for the implementation of this much-needed reform has not quite yet arrived. Despite some signs of increasing awareness in recent decades of the need for a new approach to solving the problems with which we are faced, the idea of the socialization of rent is still relatively unfamiliar to mainstream liberal political and theorists and philosophers, from both the classical and social liberal traditions. For many, the idea of land value taxation, and the geo-classical tradition within which this idea developed, are simply aspects of an obscure branch of the left-libertarian tradition, which can have little bearing on mainstream liberal political thought. Many researchers and commentators, including many in the economics profession, are unaware of the significance of the idea of economic rent and the distinctiveness of land as a factor of production. The idea of land value taxation, when it is considered at all, is either dismissed as an inconsequential and impracticable ‘single tax’ which is irrelevant to modern liberal societies dominated by global corporations and financial institutions, or endorsed as a minor additional tax, an aspect of ‘housing policy’ tacked on to the end of a programme of policies which has already dealt with the major issues of inequality and social justice through proposed increases in the taxation of income and wealth.

This lack of awareness among progressives of the potentially radical and far-reaching impact of the shift to a land value-based system of taxation is matched by the deeper problem of the widespread misperception that neo-liberal ideology – which many commentators blame for the current state of affairs – is based on the delusion that the solution to the problems of the weak and oppressed is to ‘roll back the frontiers of the state’ so that governments ‘take a back seat’. The real delusion at the core of neo-liberal ideology is the assumption that governments can go a long way towards putting themselves in the back seat and ‘rolling back’ the state by reducing top rates of income tax (which bear mostly on the rich and powerful), deregulating the financial services sector, and selling off common economic resources. In reality, the liberation of the poor and oppressed is a goal which is far more difficult and challenging to achieve, requiring a deep-rooted transformation of the core socio-economic institutions and practices of liberal societies, which will take generations to complete. Although there are signs that awareness of the delusions at the core of the neo-liberal paradigm is growing, proposals for the implementation of land value-based fiscal reform are unlikely to be politically feasible without the emergence of a much deeper and more widespread transformation in understanding.

A useful point of comparison with the current state of awareness in respect of the idea of land value taxation is the recent surge in interest in the idea of the universal basic income. This idea has attracted increasing attention from a large number of political thinkers on both sides of the political spectrum, and is emerging closer to the surface of public political consciousness in many liberal societies as journalists, think tanks, and political parties begin to endorse it as an attractive, radical, and feasible institutional reform. Proponents of the socialization of rent will hope that the tax-shift that they endorse can attract the same kind of interest from political thinkers during the next decade or two, so that the arguments discussed in this book – as well as many issues which I have not considered, such as the potential role of land value taxation in combatting global injustice and enhancing environmental sustainability – can be explored and examined as thoroughly as the issues relating to the basic income have been. My hope is that this book might help to (re)generate this kind of interest, and in this way steer the progressive movement back towards the direction in which it was heading in the late nineteenth and early twentieth centuries, so that by 2026 – about the time that the next land price bubble is due to burst – many more progressive politicians and journalists will be familiar with the idea of a shift in the burden of taxation to unearned rent.

Index

access to credit 114, 115, 250n9

agglomeration 110, 116–17, 133, 135, 198

Andelson, Robert 18n2

Annual Site Premium 243

average revenue product 124–5

bank levy 251n13

Barnes, Peter 250n10

basic income 221, 222, 228, 229, 230, 249n2, 257

basic rights and liberties: assigned priority over second principle of justice 80, 151; constituting a coherent scheme 159, 180–4, 186; first principle of justice, secured by 80; market system consistent with 172; political liberties, distinct form of 80–1; primary social goods, specific category of 80; Rawlsian versus Tomasian specifications of 143, 149–50; self-limiting character of 186–7; worth of maximized by difference principle 81

Beinhocker, Eric 154–5

Bentham, Jeremy 30, 56n5

Berlin, Isaiah: negative liberty, conception of 26, 29, 35; positive and negative liberty, distinction between 25–31, 34; on value pluralism 32–3, 35

Brennan, Jason 56n6, 56n7, 145, 205–6

‘burdens of judgment’ 92n2

capital: Clark’s conception of 120–1; conflict with labour 207, 234–5; defined 128; as distinct from land 69, 70, 114, 120, 126, 128, 133, 138n13; distribution of 82–3, 187–9, 226, 228–30, 236; elasticity of supply in relation to land 128; mobility of 226; ownership of 174–7, 179–84; predistribution and 229–32, 234–6; productivity of 101–2, 114, 125–6, 233; taxation of 122, 130, 166, 192, 233–4

Capital Consumption Allowances 114

capital gains: rent, confusion with 134–5; socio-economic inequality and 111; taxation of 210, 241, 250n8

capitalism: orthodox free market form of 28–9, 32, 48–50 see also (democratic laissez-faire);

productivity of 1, 136; pure (or ideal) form of 195–200; welfare state form of see welfare state capitalism

Clark, J.B. 120–2, 128, 131

classical liberalism: Friedman and 48; Hayek and 38; libertarianism and 85–6; market freedom and 7, 24; neo-classical liberalism and 145; social liberalism versus 7–8, 62

Cohen, G.A. 36–7, 57

Cohen, Joshua: deliberative democracy, conception of 173–4, 180–1; democratic socialism, conception of 173–4, 183–4; parallel case argument and 174–5, 178–9; psychological support argument and 174–8; on splitting the atom of ownership 191; structural constraints argument and 179–80, 181–2

conception of the good, idea of 78, 147–8

constitutional essentials: inappropriateness of socio-economic rights as 162–3; not constitutive of the priority of liberty 162–5

constitutionalism: Rawlsian versus Tomasian conceptions of 160; Tomasi’s problematic conception of 161–3

Council Tax 241–3

deadweight losses 126–8, 130, 135, 199, 210–11, 222, 224, 226

democracy: Cohen’s deliberative conception of 173; potential conflict with other fundamental interests 181–2; Schweikart’s economic conception of 174; substantive conception of justice, one aspect of 180–1

democratic laissez-faire: defined 206; inefficiency of 209–10; inequality within 208–9; ruled out by priority of substantive opportunity 216–17, 218–20

democratic limited government: defined 205–6; inequality within 223; ruled out by priority of substantive opportunity 221–4

desert: central to the knowledge inheritance theory of distribution 132–4; as distinct from legitimate expectations and individual responsibility 86–7; irrelevance to the justification of the attachment of intrinsic importance to market freedom 86

difference principle, the: constitutional guarantee, not guaranteed by 163; defined 81; property-owning democracy, fully secured by 82–3; priority of substantive opportunity and 157–60, 163–5; welfare state capitalism, not fully secured by 82

differential rent 97, 127, 130

diminishing returns, law of 96–8, 124

distributional adequacy condition 150–1

economic exceptionalism: Rawls’s problematic endorsement of 146–8; Tomasi’s critique of 146–8

economic growth: importance of 154–5; as perfectionist value 156–7, 164, 182; tyranny of 152–7

economic liberties see private economic liberty

Edgeworth, Francis 137n7

education 222–3

Ely, Richard 113, 137n7

endowment tax, the 211–15, 217

environmental sustainability 257

Epstein, Richard: orthodox market freedom and 52–5, 118–19; redistribution last, principle of 250n11

equality: conflict between negative liberty and 24–5, 28–9, 32–6, 44–5; of opportunity see fair equality of opportunity, principle of;

overlap with freedom 23, 33–6, 44–5; of political participation see fair value of the political liberties, guarantee of;

private property and 22–3

Estlund, David 166

‘everyday libertarianism’ 90–1

extensive margin of production 97, 124–5, 127

fair equality of opportunity, principle of: defined 81; priority of substantive opportunity and 164; property-owning democracy, fully satisfied by 82–3; welfare state capitalism, not fully satisfied by 82

fair value of the political liberties, guarantee of: constitutional essentials and 202n5; first principle of justice, part of 80–1; property-owning democracy, fully satisfied by 82–3; Rawlsian interpretation of 82–3; real market freedom and 184; Tomasian interpretation of 160–3; welfare state capitalism, not satisfied by 82

Fifth Amendment to the United States Constitution see Takings clause of the United States Constitution

Foldvary, Fred: on land use patents as incentives for large developers 137–8; on ‘rent collection options’ in relation to land speculation 137

Fourteenth Amendment to the United States Constitution 161–2

free banking 239

free market fairness: constitutionalism, problematic conception of 161–3; ‘fair share’ of income and wealth, conception of 149–50; incoherence of 150–2; maximization of economic growth, problematic commitment to 152–7; orthodox character of 148; thick economic liberty, commitment to 146

Friedman, Milton: economic freedom, conception of 48; land value taxation, endorsement of 50–2; market freedom, orthodox conception of 48–50; negative income tax, and 49, 156

Gaffney, Mason 114

Gaus, Gerald: on capabilities in modern market economies 155; on capitalist ideal, the 195; on fragmentation of property 193; private property, justification of 185; productive work as an aspect of the human good 177

geo-classical economics: geo-libertarianism, separable from 109; impact of taxation at the margin of production and 126–31; land as a distinct factor of production, central idea of 120, 127–31

geo-classical theory of distribution, the: marginal productivity theory, consistent with 123–5; geo-libertarianism and 104–9, 136; George’s conception of 101–3; liberal conception of justice and 109, 137; modern conception of 123–31

geo-libertarianism: geo-classical economics, separable from 109; left-libertarianism, distinct form of 104–6, 139n17, 137n2

George, Henry: on agglomeration 101–2, 110, 133; boom-bust economic cycle and 114–15; Clark’s criticism of 120–1; criticism of Malthus 99–100; on the corollaries of the law of rent 100–1; on labour-saving improvements 102; labour-saving effect of improvements, overemphasis of 112; on improvements in government and administration 102; on material progress and improvement of condition 168n4; predictions, inaccuracy of 109–12; on principle of self-ownership 104; on private property in land, injustice of 104–5; single-tax proposal 104; on speculation in land values 102–3

global injustice 257

Goodin, Robert 107, 167n3

Gourevitch, Alex 57n9, 167n2

Gray, John 185–6

Green, Thomas Hill: on land and capital, distinction between 69–70; positive freedom, conception of 68, 71–2; private property, importance of 68–9; restriction of rights of private ownership, justification of 69–71; socialization of rent, rejection of 70; substantive right to private property, importance of 69

Grey, Thomas 193–4

Gutmann, Amy 181

Hacker, Jacob 226–7

Hayek, Friedrich: denationalization of money, argument for 238–9; on knowledge and its limits 38–9; market freedom and 40, 43–7; private property as essential to rational economic activity 38–40; single-tax plan, criticism of 46–8; social freedom and 40–3

healthcare 222–3

‘Help-to-Buy’ 223, 227

highest-order interests: lower-order interests and 146–7; market freedom and 81; primary social goods and 80; priority of liberty and 80, 146–9; private economic liberty and 145–9

Hobhouse, Leonard Trelawney: knowledge inheritance theory of distributive justice and 92n6; personal and social property, distinction between 74; restriction of formal rights of private ownership, justification of 73–4; socialization of rent, endorsement of 74–5; socially created property, broad conception of 75–6

Hodgkinson, Brian 130–1, 138n12

‘home-ownerist’ policies 227, 249n4

Honore, A.M. 192

Huber, Joseph 237–8, 239, 250n7

ideal theory 160, 165, 167

income tax 162, 210, 229, 256

inefficiency 204, 208, 210, 210

inheritance tax 4, 6, 132, 162, 205, 229

intensive margin of production 97

justice as fairness: free market fairness versus 145–6; Nozick’s criticism of 107–8; priority of substantive opportunity, and 158–60, 164–5; substantive content of 80

Keynes, John Maynard 136, 153–4

knowledge inheritance theory of distribution 92, 131–2, 134

labour: conflict with land and capital 207, 230, 235, 250n8; dependent on land 102–3; elasticity of supply of 128; mobility of 130, 226; productivity of 100–1, 124–6; quasi-rent and 121–2, 130; subsidization of 222; taxation of 125–7, 130

labour theory of value 123

land: defined 127–8; distinct from capital 69–70, 103, 113–15, 120–2, 127–8, 131, 133–4, 138n13; distribution of 217–20; quasi-private ownership of 171, 195–8, 200–1, 206, 208–9, 213; private ownership of 45–7, 54–5, 63–5, 66–8, 70–1, 74–5, 104–6, 107–9, 123–4, 210; nationalization of 65, 171, 197–8

land value taxation: in Australia 251n14; diminishing marginal utility of 241; efficiency of 128–31, 210, 234; implementation of 240–5, 245–9; opportunity-enhancing effects of 211, 213–20; political feasibility of 256–7, 247; revenue generating potential of 134–6

law of diminishing returns 96

law of rent see rent

left-libertarianism: geo-libertarianism as a distinct form of 104–6; right-libertarianism, contrasted with 106–9; unorthodox market freedom and 94, 108–9

liberal socialism: defined 171–3; Cohen’s conception of 173–4, 183–4; parallel-case argument for 174–5, 178–9; priority of substantive opportunity, ruled out by 175–9, 181–4, 185–6; psychological support argument for 174–8; structural constraints argument for 179–80, 181–2

libertarianism: orthodox market freedom, and 106–8; principle of self-ownership and 106–7

liberty, priority of: economic exceptionalism and 146–8; fundamental interests and 146–8; lower-order interests and 156–7; Rawlsian versus Tomasian conceptions of 143; substantive opportunity and 149–52, 157–9, 164–5

Locke, John 104, 106, 107, 108

lower-order interests: criticism of Rawls’s conception of 147–8; perfectionist values and 157–8

luck egalitarianism 18n4

McCloskey, Deirdre 155, 168

MacPherson, C.B. 56n3, 56n4, 58

Malthus, Thomas 99, 140

marginal land 125, 189–99

marginal productivity theory of distribution 121–2, 138n10

marginal revenue product 122, 124, 196

market democracy: orthodox versus unorthodox conceptions of 11–14, 171, 195–201, 205–7; as research program 6

market democratic property-owning democracy: orthodox laissez-faire, contrast with 204, 205–11; orthodox limited-government capitalism, contrast with 221–4; overview 206–8

market freedom: interpretative flexibility of 24; negative liberty and 30–2; orthodox conception of 23–4, 152; quasi-private landownership essential to the protection of 171, 195–8, 200–1, 206; partially predistribution and 231–2; social freedom, contrasted with 31, 71–2, 83–4; unorthodox conception of 11–12, 108–9, 152, 199–200

Marshall, Alfred 121, 128, 137n1

Marx, Karl 123

Meade, James 227–30, 232

mercantilism 95

Mill, James 98

Mill, John Stuart: on Communism as an alternative to private property 63–4; compensation for landowners, view of 66; on nationalization of land 65; on private property in land 63, 4; restriction of rights of private ownership, justification of 67–8; right of bequest, attitude to 67; social justice, desert based conception of 42; socialization of rent, partial endorsement of 64–5; stationary state, conception of 153–4

Miller, David 71

monetary reform: bank levies and 251n13; Hayek’s view of 238–9; monetary reform ‘limited purpose banking’ and 250–1n13; predistribution and see predistribution;

Robertson’s view of 236–8

money: creation of by bank-lending 236–7; denationalization of 238–40; free banking and 239; nationalization of 236–8

monopoly 134, 239

mortgage interest 118, 135, 218, 223–5, 246, 248

Murphy, Liam 87–8, 90

Nagel, Thomas 87–8, 90

National Non-Domestic Rates 243

negative equity 247–8

negative income tax 49, 135, 150, 156

negative liberty: conflict with other values 29, 32–3, 35–6, 56n3; distinguished by Berlin from the value of liberty 28–9; market freedom as a form of 30–2; overlap with other values 35–7, 56n3; positive liberty, contrasted with 25–8; silent assumptions within Berlin’s discussion of 24, 34–5

neo-classical liberalism 4, 145

neo-liberal ideology 52, 256

New Deal 57n8, 162

Nozick, Robert 107–8, 137n3

oligopoly 235

On Liberty 62

O’Neill, Martin 154, 172, 191, 229

opportunity cost 121, 139

original position, the 79–80, 148

Otsuka, Michael 137n2, 141

ownership, incidents of 54, 192–4

Paine, Thomas 132–3, 141

Parijs, Phillipe van 137n2

payroll tax 210, 243–4

perfectionist values see lower-order interests

Pettit, Philip 34, 56n4

Physiocrats, the 95–6

Picketty, Thomas 111–12

Platz, Jeppe von 167n1

political liberties: negative liberty, conflict with 24; negative liberty, contrasted with 25–8, 56n6; negative liberty, overlap with 27–8, 35–7, 42–3, 45–6, 54, 56n7; social freedom and 30–2; see also fair value of the political liberties, guarantee of positive liberty

post-productivism 249n2

predistribution: Hacker’s conception of 226–7; the market democratic property-owning democracy and 207; market freedom and 231–2; monetary reform and 236–9; progressive potential of 207, 234–6, 250n9, 250n10; redistribution, contrasted with 230–2; regressive redistributive taxation and 231; Robertson’s conception of 230; the social democratic property-owning democracy and 228–30

primary social goods 77–81, 84, 146

principles of justice, the: constructed on the basis of a conception of society 77–8; fully compatible only with property-owning democracy and liberal socialism 82–3, 171–2, 228–9; incompatible with laissez-faire capitalism and command economy socialism 171; original position and 79–80; primary social goods and 78–9; well-ordered society and 79

Principles of Political Economy 62

priority of liberty see liberty, priority of

priority of substantive opportunity see substantive opportunity, priority of

private economic liberty: criticism of Tomasi’s account of 148–52; market freedom, conflict with 149–52; orthodoxy of Tomasi’s account of 148; social freedom and 149, 151–2

privately created property 23–4, 35, 46–7, 50–2, 55, 64–8, 71–2, 76, 88, 91–2, 136–7, 148, 171, 198–201, 207, 217, 220, 231

profit 122–5, 237

Progress and Poverty 9, 99, 109

progressive redistributive taxation 49, 110, 221, 223–36

property-owning democracy: inheritance tax and 229; market democratic conception of 206–8; predistribution, and 227–32; Skelton’s conception of 227; social democratic conception of 82–3, 227–30

public ownership 172, 179, 181, 187, 197–8, 200, 202

public property 32, 197, 207, 209

public services 198, 233

Pullen, John 18n4, 20

quasi-private ownership 171, 191, 196–9, 220

quasi-rent 121–2

Quesnay, Francois 95–6

Rand, Ayn 177

range of self-authorship, the 150

Rawls, John: ‘Aristotelian Principle’, the 202n6; on the ‘burdens of judgment’ 92n2; conception of the good, idea of 147; on economic exceptionalism 146–8; on economic growth 154; on effort and moral desert 92n3; on the fair value of the political liberties 163, 184, 202n5; free and equal citizenship, idea of 78–9; on legitimate expectations 86; on liberal socialism 172; the original position, idea of 79–80; political society, conception of 202n4; predistribution and 229–30; principles of justice, the 80–1; on property-owning democracy versus welfare state capitalism 81–3, 228–9; on the psychological support argument 201n1; social contract theory and 76–7; social cooperation, idea of 77–8; social freedom, and 83–4; socio-economic regimes, identification of 171–2; on utilitarianism 76–7

realistic utopianism 166

redistribution of income and wealth: efficiency versus inefficiency of 225–6, 232–4; market freedom, in relation to 83–4, 87–90, 200–1, 231–2; predistribution, contrasted with 230–2; progressive potential of 225–6

regressive redistributive taxation 217, 223–5, 231, 233, 237, 239

rent: confusion with capital gains, interest, and profit 134–5, 250n8; George on 101–3; Hobhouse on 74–5; law of, the 9, 100–1; marginal productivity of land and 123, 124–5, 231; Mill on 65–6; neo-classical economists’ generalization of 119–22; private creation of 115–9; Ricardo’s theory of 96–8; Smith on 96; social creation of 74–5, 89, 116–17, 101–2, 133–4; speculation and 102–3, 113–15, 137n8, 124; wages and 122–5

Ricardo, David 8, 9, 50, 96–9, 101, 122, 137n1

‘Right to Buy’ 223, 227

rights of private ownership: formal versus substantive 185–7, 189; market freedom and 11–12, 22–3, 30–2, 35, 37, 45–7, 51–2, 54–5, 60–1, 64–7, 71–2, 75–6, 81, 83–4, 88–9, 108–9, 136, 148–9, 170–1, 191, 194–200, 214–7; priority of substantive opportunity and 170, 185–7; private economic liberty and 143, 148–52; social freedom and 23–4, 31–2, 40, 54, 60, 72, 84, 148–9, 151–3, 170–1, 189, 214–17

Robertson, James 230, 236–9, 250n7

Rognlie, Matthew 137n6

Roosevelt, Franklin 57n8, 162

Rothbard, Murray 113, 141

sales tax see value added tax

scarcity rent 96, 125, 135, 209, 218

Schmidtz, David 56n6, 56n7, 107

Schweikart, David 174, 181–3

self-employment 155, 213, 236

self-ownership, principle of 85, 104, 106–9, 115, 136

Seligman, E.R.A 9

Sen, Amartya 84–5, 155

Skelton, Noel 227

Skinner, Quentin 34

Smith, Adam 8–9, 94, 95–6, 120

social freedom: defined 31, 72, 83; Green’s positive conception of freedom and 71; market freedom contrasted with 31, 71–2, 83–4; priority of liberty, and 144; private economic liberty and 143, 149–52, 189; Rawls and 83–4; Sen’s conception of 84–5; substantive opportunities and 31, 84, 143

social housing 2, 223–4, 227, 244, 249n5

social liberalism: classical liberalism versus 2–3, 7–8, 60–1; Green and 72; Hobhouse and 75–6; market freedom and 60–2, 71–2, 81–3, 87–92; Mill and 68; neo-classical liberal critique of 145; social freedom and 72, 83–5

speculation 74, 102–3, 105, 110, 113–15, 124, 137n8, 139n16

Stamp Duty Land Tax 242

Steiner, Hillel 18n4, 137n2, 139n17

subsidies 49–50, 201n1, 217, 222, 223–4, 237

substantive opportunity, priority of: defined 144, 158; the difference principle and 164–5; economic growth and 155–7; liberal socialism and 165, 170, 174–9, 179–84, 185–6; lower-order interests and 155–7, 182; market freedom and 158–9, 170, 186–7

Sugin, Linda 212–13

Supreme Court, U.S. 162

Takings clause of the United States Constitution 52–3, 57n11

Taylor, Charles 27

Taylor, Robert 146–7, 201n2

Thatcher, Margaret 241

Theory of Justice, A 2, 76, 82, 172

thick versus thin economic liberty 146, 161, 205

Thomas, Alan 229–30

Tideman, Nicholas 137n8

Tomasi, John: on economic growth 152–3; free market fairness, conception of 145–6 see also (democratic laissez-faire; see also democratic limited government);

market freedom, orthodox conception of 148; on Mill 68; neo-classical liberalism and 145; private economic liberties, problematic conception of see private economic liberty;

on thick versus thin economic liberty 146, 161, 205

Tully, James 26, 27, 57n8

unemployment 1, 5–6, 49, 73–4, 126–7, 135, 139n16, 199, 210, 222–3, 239, 246

utilitarianism 52, 54, 76–7, 82, 84

utopophobia 166

Valuation Office Agency 242

value added tax 126–7, 244

wages: general level of 4–6, 9, 73–4, 99–103, 110–12, 124–5, 127, 137n5, 198, 209, 219, 225, 231, 250n9; marginal productivity theory and 92n7, 131, 120–5, 138n10, 248; taxation of 9, 96, 98, 105, 125–7, 130–1, 135–6, 199, 209, 222, 225, 234

Waldron, Jeremy 187–9, 191–2

Walras, Leon 137n1

Weale, Albert 92n7

welfare state capitalism 61, 82, 171, 173

well-ordered society 79, 81, 84, 165, 201n1, 202n4

Wicksteed, Philip 137n1

Williamson, Thad 154, 229, 250n6

workplace democracy see liberal socialism