Economic Thoughts, Part XIV: On Equality

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

Milton and Rose Friedman, in Chapter 5 of their 1979 book, Free to Choose: A Personal Statement, discuss the issue of equality:

...In the early decades of the Republic, equality meant equality before God; liberty meant liberty to shape one's own life. The obvious conflict between the Declaration of Independence and the institution of slavery occupied the center of the stage. That conflict was finally resolved by the Civil War. The debate then moved to a different level. Equality came more and more to be interpreted as "equality of opportunity" in the sense that no one should be prevented by arbitrary obstacles from using his capacities to pursue his own objectives. That is still its dominant meaning to most citizens of the United States.

Neither equality before God nor equality of opportunity presented any conflict with liberty to shape one's own life. Quite the opposite. Equality and liberty were two faces of the same basic value...

A very different meaning of equality has emerged in the United States in recent decades...equality of outcome...Equality of outcome is in clear conflict with liberty. The attempt to promote it has been a major source of bigger and bigger government, and of government-imposed restrictions of our liberty.

EQUALITY BEFORE GOD

...the clue to what Thomas Jefferson and his contemporaries meant by equal is in the next phrase of the Declaration - "endowed by their Creator with certain unalienable rights; that among these are Life, Liberty, and the pursuit of Happiness." Men were equal before God. Each person is precious in and of himself. He has unalienable rights, rights that no one else is entitled to invade. He is entitled to serve his own purposes and not to be treated simply as an instrument to promote someone else's purposes�

Equality before God - personal equality - is important precisely because people are not identical. Their different values, their different tastes, their different capacities will lead them to want to lead very different lives. Personal equality requires respect for their right to do so...Jefferson had no doubt that some men were superior to others, that there was an elite. But that did not give them the right to rule others.

If an elite did not have the right to impose its will on others, neither did any other group, even a majority...Government was established to protect that right - from fellow citizens and from external threat - not to give a majority unbridled rule...

...Alexis de Tocqueville...saw equality, not majority rule, as the outstanding characteristic of America. "In America," he wrote,

the aristocratic element has always been feeble from its birth...

America, then, exhibits in her social state a most extraordinary phenomenon. Men are there seen on a greater equality in point of fortune and intellect, or, in other words, more equal in their strength, than in any other country of the world, or in any age of which history has preserved the remembrance.

EQUALITY OF OPPORTUNITY

...Like personal equality, equality of opportunity is not to be interpreted literally. Its real meaning is perhaps best expressed by the French expression dating from the French Revolution: Une carriere ouverte aux les talents - a career open to talents. No arbitrary obstacles should prevent people from achieving those positions for which their talents fit them and which their values lead them to seek. Not birth, nationality, color, religion, sex, nor any other irrelevant characteristic should determine the opportunities that are open to a person - only his abilities.

On this interpretation, equality of opportunity simply spells out in more detail the meaning of personal equality, of equality before the law...

Like every ideal, equality of opportunity is incapable of being fully realized...The very concept of a "melting pot" reflected the goal of equality of opportunity...

The priority given to equality of opportunity in the hierarchy of values generally accepted by the public after the Civil War is manifested particularly in economic policy. The catchwords were free enterprise, competition, laissez-faire. Everyone was free to go into any business, follow any occupation, buy any property, subject only to the agreement of the other parties to the transaction. Each was to have the opportunity to reap the benefits if he succeeded, to suffer the costs if he failed. There were to be no arbitrary obstacles. Performance, not birth, religion, or nationality, was the touchstone.

One corollary was the development of what many who regarded themselves as the cultural elite sneered at as vulgar materialism...As Tocqueville pointed out, this emphasis reflected the unwillingness of the community to accept the traditional criteria in feudal and aristocratic societies, namely birth and parentage. Performance was the obvious alternative, and the accumulation of wealth was the most readily available measure of performance.

Another corollary, of course, was an enormous release of human energy that made America an increasingly productive and dynamic society in which social mobility was an everyday reality. Still another, perhaps surprisingly, was an explosion in charitable activity. This explosion was made possible by the rapid growth in wealth...

...in the economic sphere as elsewhere, practice did not always conform to the ideal. Government was kept to a minor role; no major obstacles to enterprise were erected, and by the end of the nineteenth century, positive government measures, especially the Sherman Anti-Trust Law, were adopted to eliminate private barriers to competition. But extralegal arrangements continued to interfere with the freedom of individuals to enter various businesses or professions, and social practices unquestionably gave special advantages to persons born in the "right" families, of the "right" color, and practicing the "right" religion. However, the rapid rise in the economic and social position of various less privileged groups demonstrates that these obstacles were by no means insurmountable�

EQUALITY OF OUTCOME

That different concept, equality of outcome, has been gaining ground in this [20th] century...In some intellectual circles the desirability of equality of outcome has become an article of religious faith...

For this concept, as for the other two, "equal" is not to be interpreted literally as "identical."...

This concept of equality differs radically from the other two. Government measures that promote personal equality or equality of opportunity enhance liberty; government measures to achieve "fair shares for all" reduce liberty. If what people get is to be determined by "fairness," who is to decide what is "fair"?..."Fairness" is not an objectively determined concept once it departs from identity. "Fairness," like "needs," is in the eye of the beholder. If all are to have "fair shares," someone or some group of people must decide what shares are fair - and they must be able to impose their decisions on others, taking from those who have more than their "fair" share and giving to those who have less. Are those who make and impose such decisions equal to those for whom they decide? Are we not in George Orwell's Animal Farm, where "all animals are equal, but some animals are more equal than others"?

In addition, if what people get is determined by "fairness" and not by what they produce, where are the "prizes" to come from? What incentive is there to work and produce? How is it to be decided who is to be the doctor, who the lawyer, who the garbage collector, who the street sweeper? What assures that people will accept the roles assigned to them and perform those roles in accordance with their abilities? Clearly, only force or the threat of force will do.

The key point is not merely that practice will depart from the ideal...The point is rather that there is a fundamental conflict between the ideal of "fair shares" or of its precursor, "to each according to his needs," and the of personal liberty. This conflict has plagued every attempt to make equality of outcome the overriding principle of social organization. The end result has invariably been a state of terror...And even terror has not equalized outcomes. In every case, wide inequality persists by any criterion; inequality between the rulers and the ruled, not only in power, but also in material standards of life...

...dissatisfaction has mounted with every additional attempt to implement equality of outcome.

Much of the moral fervor behind the drive for equality of outcome comes from the widespread belief that it is not fair that some children should have a great advantage over others simply because they happen to have wealthy parents. Of course it is not fair. However, unfairness can take many forms. It can take the form of the inheritance of property...it can also take the form of the inheritance of talent...The inheritance of property can be interfered with more readily than the inheritance of talent. But from an ethical point of view, is there any difference between the two? Yet many people resent the inheritance of property but not the inheritance of talent...

The ethical issues involved are subtle and complex. They are not to be resolved by such simplistic formulas as "fair shares for all."...

Life is not fair. It is tempting to believe that government can rectify what nature has spawned. But it is also important to recognize how much we benefit from the very unfairness we deplore...

...What kind of world would it be if everyone were a duplicate of everyone else?...

Still another facet of this complex issue of fairness can be illustrated by considering a game of chance...The people who choose to play may start the evening with equal piles of chips, but as the play progresses, those piles will become unequal. By the end of the evening, some will be big winners, others big losers. In the name of the ideal of equality, should the winners be required to repay the losers?...would they come back again to play if they knew that whatever happened, they'd end up exactly where they started?

This example has a great deal more to do with the real world than one might at first suppose. Every day each of us makes decisions that involve taking a chance...Each time the question is, who is to decide what chances we take? That in turn depends on who bears the consequences of the decision. If we bear the consequences, we can make the decision. But if someone else bears the consequences, should we or will we be permitted to make the decision?...

The system under which people make their own choices - and bear most of the consequences of their decisions - is the system that has prevailed for most of our history. It is the system that gave the Henry Fords, the Thomas Alva Edisons, the George Eastmans, the John D. Rockefellers, the James Cash Penneys the incentive to transform our society over the past two centuries. It is the system that gave other people an incentive to furnish venture capital to finance the risky enterprises that these ambitious inventors and captains of industry overtook. Of course, there were many losers along the way - probably more losers than winners...But for the most part they went in with their eyes open. They knew they were taking chances. And win or lose, society as a whole benefited from their willingness to take a chance.

The fortunes that this system produced came overwhelmingly from developing new products or services, or new ways of producing products or services, or of distributing them widely. The resulting addition to the wealth of the community as a whole, to the well-being of the masses of the people, amounted to many times the wealth accumulated by the innovators...Moreover, in many cases the private fortunes were largely devoted in the end to the benefit of society. The Rockefeller, Ford and Carnegie foundations were only the most prominent...

There is no inconsistency between a free market system and the pursuit of broad social and cultural goals, or between a free market system and compassion for the less fortunate, whether the compassion takes the form, as it did in the nineteenth century, of private charitable activity, or, as it has done increasingly in the twentieth, of assistance through government - provided that in both cases it is an expression of desire to help others. There is all the difference in the world, however, between two kinds of assistance through government that seem superficially similar: first, 90 percent of us agreeing to impose taxes on ourselves in order to help the bottom 10 percent, and second, 80 percent voting to impose taxes on the top 10 percent to help the bottom 10 percent...The first may be wise or unwise, an effective or ineffective way to help the disadvantaged - but it is consistent with belief in both equality of opportunity and liberty. The second seeks equality of outcome and is entirely antithetical to liberty.

WHO FAVORS EQUALITY OF OUTCOME?

There is little support for the goals of equality of outcome despite the extent to which it has become almost an article of religious faith among intellectuals and despite its prominence in the speeches of politicians...

For intellectuals, the clearest evidence is their failure to practice what so many of them preach. Equality of outcome can be promoted on a do-it-yourself basis. First, decide exactly what you mean by equality. Do you want to achieve equality within the United States? In a selected group of countries as a whole? In the world as a whole? Is equality to be judged in terms of income per person? Per family? Per year? Per decade? Per lifetime? Income in the form of money alone? Or including such non-monetary items as the rental value of an owned home; food grown for one's own use; services rendered by members of the family not employed for money, notably the housewife? How are physical and mental handicaps or advantages to be allowed for?...

What Irving Kristol has called the "new class" - government bureaucrats, academics whose research is supported by government funds or who are employed in government-financed "think-tanks," staffs of the many so-called "general interest" or "public policy" groups, journalists and others in the communications industry - are among the most ardent preachers of the doctrine of equality...The members of the new class are in general among the highest paid persons in the community. And for many among them, preaching equality and promoting or administering the resulting legislation has proved an effective means of achieving such high incomes...

...On another level compulsion would change matters drastically: the kind of society that would emerge if such acts of redistribution were voluntary is altogether different - and, by our standards, infinitely preferable - to the kind that would emerge if redistribution were compulsory...

CONSEQUENCES OF EGALITARIAN POLICIES

[In discussing British domestic policy since World War II]...Measure after measure has been adopted designed to take from the rich and give to the poor...There has been a vast redistribution of wealth, but the end result is not an equitable distribution.

Instead, new classes of privileged have been created to replace or supplant the old; the bureaucrats, secure in their jobs...the trade unions that profess to represent the most downtrodden workers but in fact consist of the highest paid laborers in the land - the aristocrats of the labor movement; and the new millionaires - people who have been cleverest at finding ways around the laws, rules, the regulations...A vast reshuffling of income and wealth, yes; greater equality, hardly.

The drive for equality in Britain failed, not because the wrong policies were adopted...not because they were badly administered...not because the wrong people administered them...The drive for equality failed for a much more fundamental reason. It went against one of the most basic instincts of all human beings. In the words of Adam Smith, "The uniform, constant, and uninterrupted effort of every man to better his condition" - and, one may add, the condition of his children and his children's children. Smith, of course, meant not merely material well-being...He had a much broader concept in mind, one that included all of the values by which men judge their success...

When the law interferes with people's pursuit of their own values, they will try to find a way around. They will evade the law, they will break the law, or they will leave the country. Few of us believe in a moral code that justifies forcing people to give up much of what they produce to finance payments to persons they do not know for purposes they may not approve of. When the law contradicts what most people regard as moral and proper, they will break the law...Only fear of punishment, not a sense of justice and morality, will lead people to obey the law.

When people start to break one set of laws, the lack of respect for the law inevitably spreads to all laws, even those that everyone regards as moral and proper...

In addition, that drive for equality has driven out of Britain some of its ablest, best-trained, most vigorous citizens...Finally, who can doubt the effect that the drive for equality has had on efficiency and productivity?...

CAPITALISM AND EQUALITY

Everywhere in the world there are gross inequities of income and wealth...

In the past century a myth has grown up that free market capitalism...increases such inequalities, that it is a system under which the rich exploit the poor.

Nothing could be further from the truth. Wherever the free market has been permitted to operate, wherever anything approaching equality of opportunity has existed, the ordinary man has been able to attain levels of living never dreamed of before. Nowhere is the gap between rich and poor wider, nowhere are the rich richer and the poor poorer, than in those societies that do not permit the free market to operate...

Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy [as they could afford many comforts]...These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful...

CONCLUSION

A society that puts equality...ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests.

On the other hand, a society that puts freedom first will...end up with both greater freedom and greater equality. Though a by-product of freedom, greater equality is not an accident. A free society releases the energies and abilities of people to pursue their own objectives. It prevents some people from arbitrarily suppressing others. It does not prevent some people achieving positions of privilege, but so long as freedom is maintained, it prevents those positions of privilege from becoming institutionalized; they are subject to continued attack by other able, ambitious people. Freedom means diversity but also mobility. It preserves the opportunity for today's disadvantaged to become tomorrow's privileged and, in the process, enables almost everyone, from top to bottom, to enjoy a fuller and richer life.

An earlier posting offers yet more thoughts on equality and inequality.

Part XV to follow...

For previous postings on Economic Thoughts, refer to:

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