Rawls, Adam Smith, and an Argument From Complexity To Property-Owning Democracy

This paper foregrounds one argument in Rawls's work that is crucial to his case for one, determinate, form of political economy: a property-owning democracy.¹ Section one traces the evolution of this idea from the seminal work of Cambridge economist James Meade; section two demonstrates how a commitment to a property-owning democracy flows from Rawls's own principles; section three focuses on Rawls's striking critique of orthodox welfare state capitalism. This all sets the stage for an argument, presented in section four, from the complexity of economic interactions to the strategy of making markets fair in the only feasible way that they can be made fair, namely, by "patterning" their effects. Section five concludes by asking whether any scheme of this general type is a realistic form of utopianism for a society such as ours.

I. Rawls and Meade

Many early readers of A Theory of Justice took Rawls to be advocating a form of "Keynesian capitalist liberalism."² However, if we define a capitalist society as one where people who do not own capital work for wages paid to them by capitalists (those who exclusively hold property and other forms of capital), then Rawls's conception of a property-owning democracy would involve the rejection of capitalism. James Meade, the proximate influence on Rawls's ideas, was indeed a Keynesian. However, given the working definition of a capitalist society that I have noted, it seems that liberal Keynesianism can reasonably be characterized as anti-capitalist in both Meade's and Rawls's variants.

Meade's conception of a property-owning democracy emerged when he sought new avenues for egalitarianism in Britain given that the achievements of the Attlee government of 1945 were receding into the past.³ His aim was to combine Keynesian demand management with the public ownership of natural monopolies and the institutions of a property-owning democracy. Meade further proposed educational reform, a publicly funded unit trust, and state investment funds to supply an unconditional basic income. In a break with the policies of the then Labour government, Meade believed that welfare state redistribution was a threat to overall economic efficiency. Furthermore, relying on trade unions to redress the balance between labour and capital generated constant inflationary pressure in a way that explained the perceived "failure" of post-war Keynesian demand management:

[G]radually, as in our imperfectly competitive society separate groups learned to press their monopolistic bargaining powers to obtain each for itself the best possible share of the available income, the system broke down.⁴

Meade's new strategy for redressing the balance between labour and capital was to rely on market prices to protect individual liberties and economic efficiency, but to increase the bargaining strength of labour by giving workers capital:

If private property were much more equally divided we should achieve the mixed citizen—both worker and property owner at the same time—to live in the 'mixed economy' of public and private enterprise. The ownership of private property could then fulfill its useful function of providing a basis for private enterprise and for individual security and independence without carrying with it the curse of social inequality as it now does.⁵

Rawls's adaptation of Meade's ideas contains a cleaner break with welfare state capitalism, particularly in his late, summative statement of his views in Justice as Fairness where welfare state capitalism is unequivocally described as unjust.⁶ In the first edition of A Theory of Justice Rawls stated that:

The aim of the branches of government is to establish a democratic regime in which land and capital are widely though not presumably equally held. Society is not so divided that one small sector controls the preponderance of productive resources.⁷

The branches of government dealing with the economy are the Allocative branch that deals with externalities, competition, and anti-trust. The Stabilisation branch is the most Keynesian branch of government, concerned with demand management and full employment. The Transfer Branch ensures the payment of a decent social minimum compatible with economic efficiency overall, via...