Creation and rectification in Nozick’s entitlement theory: towards a defense of entitled inequality
by Dries Glorieux
(This essay won second prize at the 2017 Radmacher Essay Contest sponsored by the German Hayek Society and Hayek Foundation, republished in full on this blog)
“These issues are very complex and are best left to a full treatment of the principle of rectification. In the absence of such a treatment applied to a particular society, one cannot use the analysis and theory presented here to condemn any particular scheme of transfer payments, unless it is clear that no considerations of rectification of injustice could apply to justify it.” [emphasis added] (Nozick, 1974, p. 231).
Since the publication of John Rawls’ magnum opus A Theory of Justice in 1971 an enormous amount of literature has arisen on the subject of redistribution. Arguably the most influential contribution to the debate, besides Rawls’ his own works, appeared only three years later when Anarchy, State, and Utopia by fellow Harvard philosopher Robert Nozick was published. Taking a libertarian point of view, Nozick advanced an entitlement theory of distributive justice that was distinctively different from other theories: “The entitlement theory of justice in distribution is historical; whether a distribution is just depends upon how it came about. In contrast, current time-slice principles of justice hold that the justice of a distribution is determined by how things are distributed (who has what) as judged by some structural principle(s) of just distribution.” (1974, p. 153). Nozick consequently made a more general distinction between his historical principle of distributive justice and all other non-historical principles which he referred to as end-state principles.
In order to assess the justness of a given distribution that follows from the entitlement theory a three-fold criterion must be met (p. 151):
- A person who acquires a holding in accordance with the principle of justice in acquisition is entitled to that holding.
- A person who acquires a holding in accordance with the principle of justice in transfer, from someone else entitled to the holding, is entitled to the holding.
- No one is entitled to a holding except by (repeated) applications of 1 and 2.
The historical nature of the entitlement theory naturally leads Nozick to consider past violations of the first two principles of justice in acquisition and justice in transfer as undermining the legitimacy of contemporary distributions: “The existence of past injustice (previous violations of the first two principles of justice in holdings) raises the third major topic under justice in holdings: the rectification of injustice in holdings. If past injustice has shaped present holdings in various ways, some identifiable and some not, what now, if anything, ought to be done to rectify these injustices?” (1974, p. 152).
It is clear that the principle of rectification is crucial for the theoretical coherence and thus viability of the entitlement theory for the simple reason that without the possibility of rectification an unjust distribution will spread and potentially contaminate otherwise just distributions in the future. This violates Nozick’s basic premise that a distribution can only be just if it arises out of a prior just distribution.
Although of paramount importance both Nozick and subsequent generations of philosophers have not given rectification anywhere near a satisfactory treatment. This is unfortunate because as of late income inequality and redistribution have become some of the most pronounced topics in the public arena. It would be worthwhile to further examine the idea of rectification of past injustices to see what bearing it potentially has on these contemporary debates about redistribution and equality, especially given Nozick’s statement in the opening quote that the entitlement theory is not suitable as a standard against which to judge redistributive measures without incorporating rectification.
It is beyond the reach of this paper to present an entire theory of rectification of past injustices. I will instead focus on the calls for (a larger) redistribution of resources in the specific case of billionaires. The reason for focusing on this most extreme form of wealth inequality is because they exemplify perfectly what Mack (1995) calls world-interactive agents and they are arguably at the forefront of discussions about inequality today.
The article will proceed as follows: the second section will introduce the concepts of entitled and unentitled inequality and situate them against a background of demands for fairness. The third section will elaborate the concept of entitled inequality by discussing its foundations and the fourth section will apply this concept to the current debate about wealth inequality.
Inequality and unfairness
The argument that will be developed is situated against the backdrop of scientific research that has shown that most people don’t care about inequality as such but whether the inequality has arisen as a consequence of unfairness (Starmans, Sheskin & Bloom, 2017). Nozick’s entitlement theory seems exactly fit to capture this important moral distinction due to its emphasis on the historical nature of any distribution rather than solely judging the eventual outcome. If inequality arises out a previously just (but possibly already unequal) distribution this can be seen as morally acceptable because “… historical principles of justice hold that past circumstances or actions of people can create differential entitlements or differential deserts to things.” (Nozick, 1974, p. 155).
Put in a more broader sense we can say that people find the preconditions of inequality of significant importance. Again this resonates with Nozick’s entitlement theory in that in order to reach a just distribution (defined as any possible kind of distribution, unequal or otherwise) one is forced to categorically follow the two preconditions of justice in acquisition and justice in transfer. The straitjacket the entitlement theory imposes on distributions is uniquely fit to encapsulate both concerns about fairness and preferences for justified inequality. For simplicity’s sake we will refer to this specific kind of inequality engendered by a correct application of the entitlement theory as entitled inequality.
It is clear that inequality can and has arisen by disregarding these steps, thereby giving rise to what will be called unentitled inequality. In fact most of the debate about compensation for historical injustice today starts from the premise of unentitled inequality. The point being made is that although no direct injustice was committed by those on the upper end of the income distribution they still benefit from injustice committed by their predecessors. This opens up possibilities for redistribution of resources because “… agents can acquire rectificatory obligations through involuntary benefitting from acts of injustice.” (Butt, 2007, p. 130).
The question that this essay will deal with is whether it is indeed the case that rectification of past injustices involves a generalizable claim to redistribution of resources in today’s world from the top of the income distribution to the bottom. This question is of particular relevance for libertarians because
“By forming the judgement that the worst-off are unjustly deprived of resources, the rich libertarian does not appeal to non-libertarian considerations. Rather he accepts the logic of his own principles of historical entitlement and makes a reasonable judgement about what kind of rectification for violations of the principles of acquisition and transfer is appropriate in current circumstances. The theory requires him to acknowledge the influence that historical injustice has had on current property holdings and to find a way in which ugly legacy of historical injustice can be neutralized.” (Macleod, 2012, p. 79).
It will be argued that the entitlement theory provides a good starting point for thinking about this issue but in and of itself is insufficient for reaching conclusions about which specific situations require rectificatory redistribution. Expanding the theory to accommodate the distinction between entitled and unentitled inequality will shed light on which situations do not warrant a redistribution of resources because no injustice was involved in bringing about the inequality.
The concept of entitled inequality
The concept of entitled inequality rests on two separate but ultimately reinforcing lines of thought. On the one hand the market process theory as developed primarily by Israel Kirzner which provides the economic foundation and the self-ownership proviso elaborated by Eric Mack. The following two sections will briefly introduce these two strands of thought and comment on some of their implications after which they will be applied to the specific case of billionaires.
1. Market process theory
Market process theory takes economic disequilibrium as its starting point. This state of disequilibrium is marked by widespread ignorance on the part of market participants. The thing to be examined therefore is how, despite the ignorance, a move towards equilibrium can be achieved. In answering this the theory of the market process emphasizes the crucial role played by entrepreneurs as being the trailblazers that diminish ignorance in the market. The way that this is done is by entrepreneurs contributing to a process of cumulative learning that improves market outcomes: “Entrepreneurial discovery is seen as gradually but systemically pushing back the boundaries of sheer ignorance, in this way increasing mutual awareness among market participants and thus, in turn, driving prices, output and input quantities and qualities, toward the values consistent with equilibrium (seen as the complete absence of sheer ignorance).” (Kirzner, 1997, p. 62).
Entrepreneurial discovery, as pointed out, is a process of cumulative learning in which success or failure provide the feedback necessary to adjust or follow through on the chosen path. Success will signal to possible competitors that a certain endeavor is potentially profitable and that they should follow suit. One can thus say that trailblazing can potentially lead to pure entrepreneurial profit which acts as the symbolic drop of blood in the water that attracts the competitors.
Based on the entrepreneurial theory of the market process Kirzner points out another source of ownership that complements the entitlement theory: “The framework of Nozick’s definitions sees things as being held either as the result of original acquisition from an unheld state, or else as the result of acquisition by transfer from a previous holder. Our discussion has pointed out a third possibility: that of a thing being held as the result of the holder’s having, in the relevant sense, “created” it ex nihilo – i.e., by finding it.” (Kirzner, 1978, p. 21). A logical consequence of this ‘ownership by creation’ is that until something has been discovered (i.e. created) the thing did in fact not exist and could not have been owned.
This represents a sharp break from the standard neoclassical perspective in the sense that
“Neoclassical economics asks us to rule on the justice of the method through which or the pattern in which a given (known-to-be-knowable) pie is distributed among the potential claimants to it. This may be seen as a pie of given output; or, in more sophisticated versions, it may be seen as the yet-to-be-determined pie to be baked out of given inputs. This “given-pie” framework for discussion of economic justice restricts us to considering the justice of capitalist earnings or receipts in regard only to already existing goods (including already existing inputs with the capability of generating alternative outputs).” (Kirzner, 1997, p. 75).
In contrast to the traditional neoclassical perspective the entrepreneurial market process emphasizes the continual discovery and thus creation of new pie. It is more than simply an exercise in means-ends thinking as it holds the promise of discovering ends that have not even been conceptualized yet.
This has potentially radical implications for thinking about entitled inequality. Entitled inequality based on profits derived from entrepreneurial discovery cannot be subject to rectification for injustice in acquisition because the profit opportunity did not exist at the time the injustice was being committed simply due to the fact that nobody was aware of it. Rectification of injustice can obviously only apply to known information at the time of the injustice and not to profit opportunities discovered and knowledge gained afterward. Simply put: one cannot reinstate the original situation before the injustice took place by redistributing profits based on information only known after the fact.
2. The self-ownership proviso
Our discussion in the previous section was built on an implicit assumption, namely that the source of contemporary wealth inequality is largely a result of economic forces non-traceable to an unjust initial acquisition of natural resources. In other words the wealth inequality today is seen as not stemming from a breach of the Lockean proviso according to which one must leave ‘enough, and as good’ for others in the process of initial acquisition. For instance philosopher Jan Narveson says that “We should also note that initial holdings of “natural resources” account for virtually none of the inequality in today’s world: to attribute Bill Gates’ or Oprah Winfrey’s current eminence to “unfair initial distribution” of material resources is bizarre. …. Unless you have in mind the “natural resources” that we consist in, the initial-distribution theory is utterly wrong.” (Narveson, 1998, p. 16).
In order to adequately assess the justice of entitled inequality we will have to establish that entitled inequality does not require the intertemporal maintenance of a state of nature where everyone can acquire a stretch of land. In order to do this I will draw on insights from Eric Mack’s self-ownership proviso which I believe supports this point.
The self-ownership proviso expands the standard Lockean proviso by looking at the enablement capabilities of different forms of property regimes, e.g. do different property regimes enable the exercise of what Mack calls the ‘world-interactive powers’ of individuals such as talents and energies? These world-interactive powers are intimately bound up with the outside world and the capability of transforming this outside world in accordance with one’s own insights. It is in this dependence on an extra-personal environment that a possible breach of the proviso lies:
“For this reason, an agent’s rightfully held world-interactive powers can be negated by noninvasive means as well as by invasive ones. By invasive means, e.g., by assaults upon the agent, an individual’s powers can be destroyed or appropriated; but an agent’s world-interactive powers can be comparably negated – I shall speak of nullification and disablement – by noninvasive means. This can be done by negating (to a sufficient extent) the presence of an extra-personal environment open to being affected by that agent’s powers.” (Mack, 1995, p. 186).
The next section will argue that in the case of entitled inequality the inequality in fact serves as a way to expand the world-interactive powers of individual agents by allowing them to have a larger impact on their extra-personal environment, thus legitimizing the inequality.
It is generally accepted that in order to act on your own talents and insights you will need a certain amount of goods and services in order to fulfill your goals. In a state of nature this means being able to access land through which you can acquire food, shelter, tools and all sorts of other amenities in order to survive. Access to these things raises the potency of individual’s world-interactive powers. Without them the individual would surely die an untimely death.
Historically however there has been a mass movement towards privatization of land that has effectively ended this state of nature. This has been the basis for criticism about the unjust consequences of unequal initial appropriation of land. Some will inevitably lose out in the game of appropriation thereby diminishing their capacity for engaging with the outside world to further their own interests.
Mack’s critique is that although this state of nature will not be preserved in subsequent (private) property regimes this is not a reason to think that individuals will suffer a diminution in their world-interactive powers: “The pre-property state of nature offers a particular form of hospitality to human world-interactive powers. It offers unowned objects for use – at least insofar as they are not currently being used by other agents. There is no reason to privilege (as they say) this form of hospitality, this particular mode of receptivity to world-interactive powers.” (1995, p. 212).
The key to justifying entitled inequality lies in the fact that, on net, a properly functioning market economy expands rather than diminishes the world-interactive powers of individuals through the workings of the entrepreneurial market process. A profit opportunity that was previously unnoticed and subsequently discovered by the creation of a good or service that is desired by consumers will lead to an expansion of the possibilities consumers have to engage with their surroundings, i.e. improving their world-interactive powers.
What is crucial is that, specifically in the case of billionaires, there is a large disparity between the private and social distribution of the gains made by the discovery of the profit opportunity. Research by Nordhaus (2004) suggests that only 2,2% of the total surplus is captured by individuals and firms engaging in innovative activity. In other words the wealth inequality in the case of innovative billionaires is minute in comparison to the possibilities it offers to individuals for furthering their purposes. Entitled inequality indeed.
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 Nozick himself concedes that a redistribution à la Rawls might be in order to approximate the principle of rectification of injustice: “For example, lacking much historical information, and assuming (1) that victims of injustice generally do worse than they otherwise would and (2) that those from the least well-off group in the society have the highest probabilities of being the (descendants of) victims of the most serious injustice who are owed compensation by those who benefited from the injustices (assumed to be those better off, though sometimes the perpetrators will be others in the worst-off group), then a rough rule of thumb for rectifying injustices might seem to be the following: organize society so as to maximize the position of whatever group ends up least well-off in the society.” (1974, p. 231).
 For some exceptions see Litan (1977), Davis (1982), Kavka (1982), Tebble (2001) and Narveson (2009).
 Mainly based on economic studies such as Piketty & Saez (2003), Piketty (2014), Atkinson, Piketty & Saez (2011).
 Nozick comments that “No doubt people will not long accept a distribution they believe is unjust. People want their society to be and to look just. But must the look of justice reside in a resulting pattern rather than in the underlying generating principles?” (1974, pp. 158-159).
 Nozick himself acknowledges this by pointing out that those in the most well-off and least well-off groups in today’s society will most likely be the descendants of the groups having done the actual injustice and having suffered the injustice respectively.
 In this context Lippert-Rasmussen uses the terms innocent beneficiaries and innocent victims of historical injustices and gives the following definition of these terms: “By being an ‘innocent beneficiary’ or an ‘innocent victim’, I mean being such that one is not responsible for having received the relevant benefit or being subjected to the relevant harm.” (2017, p. 74).
 Kirzner (1997).
 At this point it is necessary to stress that the entrepreneurial profit made by the discovery of previously unknown profit opportunities is distinct from the return one gets from factors of production.
 As Kirzner explains: “An opportunity for pure profit cannot, by its nature, be the object of systematic search. Systematic search can be undertaken for a piece of missing information, but only because the searcher is aware of the nature of what he does not know, and is aware with greater or lesser certainty of the way to find out the missing information. In the economics of search literature, therefore, search is correctly treated as any other deliberate process of production. But it is in the nature of an overlooked profit opportunity that it has been utterly overlooked, i.e., that one is not aware at all that one has missed the grasping of any profit.” (1997, p. 71).
 My point here has some parallels to the argument developed in Morris (1984).
 An example to illustrate this point: the profit opportunities associated with the development of apps for mobile devices were completely unknown during the time of European colonization of Africa in the late 19th and early 20th century. What was known however is the profit opportunities associated with the extraction of natural resources and the fact that Africa had both large proven and unproven reserves of these natural resources. Forcing Travis Kalanick (co-founder and CEO of Uber) to hand over part of his vast wealth to compensate African countries for the unjustified acquiring of these natural resources by European countries seems morally unjustified.
 Some advocates of redistribution for correcting historical injustices claim that although this might be true there is still the matter of benefitting indirectly from the historical injustice. This is a distinct view that claims that even people who are not direct descendants of those who did the actual injustice still benefit from the injustice. For example Caucasian students that have attended prestigious universities such as Oxford, Harvard and Yale which were at one time financially supported by slaveholders and/or supporters of slavery could said to have benefitted from the historical injustice of slavery. As this essay is limited in space this issue will not be addressed here.
 For instance see Cohen (1995).
 Perhaps the most infamous critique is Karl Marx’s description of the laborer being forced to sell his own labor in order to survive because it’s the only thing he owns.