The conceptual foundations of decision-making in a democracy

(2003)–Peter Pappenheim– rechtenstatus

Part Four B)
A Just Income Distribution

4b.1) Issues and Definitions.

Two main issues dominate the discussion about a just income distribution:

-	Can we in a democracy define any specific shape of the income distribution as being the just one?
-	Are individuals legitimately entitled to all income they have obtained by legitimate (= not illegitimate) means?

Clearly, we cannot answer yes to both issues. Entitlements vary. If we accept that entitlements to legitimately obtained income must be respected, these entitlements will shape the income distribution. That leaves us three choices

-	choose for the first and reject the second, as socialists have done
-	choose for the second and reject the first, following radical libertarians.
-	reject any claim to absolute validity for either of them, as mandated by the priority of the democratic principle.

In this part I will first explain why both radical choices are to be rejected. Then the ‘democratic’ income distribution will be presented. We will find that we cannot deal with income distribution without taking a stand on another issue: the functions which the state has to fulfil and the way in which these functions are to be financed. Before plunging into that argumentation, a few essential concepts will be defined.

4b.1.1) Income and wealth. Wealth is the totality of available goods (material or immaterial) to which an individual attaches, or may attach, some importance in terms of possession or use. In social decision-making, we can limit wealth to those goods whose availability can be influenced by decisions of society, economic goods (see below) or - for sake of simplicity - just goods.

Income is the totality of goods which we can consume during a specific period while ending that period with the same wealth which we had at the beginning.

4b.1.2) Economic goods, henceforth called ‘goods’, are anything which:

-	is scarce or could become scarce
-	can be obtained in some process of exchange
-	is wanted (otherwise it is irrelevant to decision-making).

In contrast to the current aberration, they encompass much more than the goods to which a price can be assigned by the market. Safety is an economic good: it can be increased or decreased by increasing or decreasing the amount of effort and resources which we allocate to legislation, the police or the military. The same applies to a clean environment: we clearly want it, and we can increase the satisfaction we derive from having a ‘good’ environment only by paying for it through reduction of our consumption of certain other goods like transportation and heating/cooling either through legislation or a price increase. Safety and environment are part of our wealth, are economic goods, just like radios and cars.

4b.1.3) Private versus public goods. Goods which are scarce but wanted generate a problem of allocation: scarcity precludes that all individuals have as much of them as they want to. If those goods are not available in nature (very few still are), they must be produced, using up resources which could have been applied to other purposes. If the nature of the good permits allocation by a market economy (a process by which these goods acquire a money price), they are called private goods.

The formation of a price in a market is possible only if an individual who wants to enjoy a good which he did not produce himself can be forced to pay a price for it. For many goods that is not possible: once they have been generated, their use cannot be restricted to specific individuals. A classic example is defence. We call them public goods. Note that the distinction between public and private goods refers exclusively to the property that their individual consumption can (or cannot) be tied to a contribution, usually to its production. The way in which they are actually allocated is irrelevant to that distinction. In socialist countries the state, in the name of the community, takes upon itself the allocation of capital goods which by their nature are private goods; yet they still remain classified as private goods. As in a democracy all private goods should be allocated by a well-regulated market, the production and allocation of private goods is unproblematic and will not be dealt with in this book.

In most cases the production of public goods will require resources which can also be engaged in the production of private goods; these resources thus have a price. We can add up all production costs and declare that this sum will be their price. The distinction between private and public goods therefore is not that the former have a price and the latter do not. The criterion is the way the price is formed: with public goods we cannot rely on a market to balance production and demand and to ensure that their price expresses the individual's preference for them. Few people would buy a share in a tank and donate it to the army because they care for security, unless they are confident that their fellow citizens will do the same, a confidence which no market can provide. Public goods suffer from the ‘free rider’ problem.

In theory, a person's share of the wealth embodied in public goods should be included in the evaluation of his income: if we increase defence, the perception of security of all citizens will be improved. Unless mentioned otherwise, we will not do so. For we can put a price on 100 new bombers, but we cannot determine the consequent increase of a specific individual's satisfaction in terms of security. Nor can we establish how much that increase is worth to him. The problems of quantifying this share do not however justify ignoring it.

4b.1.4) Primary versus secondary income. The income and wealth which individuals obtain from their participation in the economic process (including inheritance and gifts from private persons) is called the primary income.

In modern states that is not the income of which the individuals can dispose as they see fit. The state taxes away part of this income to finance its functions and it may redistribute some of it in the form of various subsidies. The individual's income is thus reduced by taxes and augmented by subsidies, the net result forming his secondary income.

Many subsidies are not in the form of a transfer of income to individuals, but to productive organisations (schools, theatres, charities etc.) which are then able to provide their services at below costs. The consumers of these services receive more value for their money than they pay for; the benefit from such subsidies is equivalent to income in kind instead of in money. A comprehensive description of the income situation of individuals requires that it includes such benefits. The personal income corrected for this indirect effect of subsidies is called the tertiary income. This concept will not be further explored in this book as it can be dealt with by the same argumentation as secondary income.

4b.1.5) The definitions of personal income must be complete and consistent. Clearly, if one economy uses the public sector to allocate private goods which in another economy are allocated by the market, for instance health insurance, the primary money-income level and its distribution over individuals may differ even though the actual consumption of private goods per individual would be exactly the same in both countries. Any adequate evaluation of a country's distribution of individual incomes will have to take account of that problem and find some way of adding to the personal income all of the individual's claims to private goods which are allocated by the state. Normally that is possible, as these claims are regulated by law. At the very least, the actual use will be registered in the country's statistics and if necessary, its production costs can be used as a price. Examples of such goods are insurance against unemployment, disability and for medical care. If they are provided by the state and paid for out of taxes, we must add the claims to their benefit to the secondary income which has been reduced by the taxation required to pay for it. Insurance companies prove that the value of such claims can be calculated.

4b.2) The Libertarian Income Distribution.

‘Libertarian’ does not refer to the American liberal left, but to the classical liberal philosophy of Nozick and the like, which puts the freedom of the individual above all other objectives of society except coexistence, and wants to limit interference by the state to the absolute minimum required for protection of the autonomy of the country and of the life, health and possessions of its individuals. That view is usually classified as conservative, but not in this book: classifying any theory about the organisation of society as conservative or progressive muddles up the issues instead of clarifying them, as illustrated by the status of communists in pre or post 1989 Russia.

Libertarians assert that we cannot justify any a priori shape of the just income distribution. Egalitarians claim that we can. I agree with the libertarians and will explain why in the next chapter.

Here we will discuss the radical libertarian view as expressed most forcefully by Nozick (see also Volume Two, Locke/Nozick, p. 321). In a market economy, he says, all wealth which is not acquired by illegal means must be the legitimate property of individuals. It therefore has to be protected by the state, and cannot be confiscated for redistribution to others. The primary income distribution therefore is the just one.

Illegally acquired wealth must be returned to its legitimate owners. It cannot provide any ground for branding the shape of the primary income distribution (which in first instance will contain illegal income) as unjust, because illegal activity is neutral in terms of that shape: it can transfer income from rich to poor (burglary and kidnapping) as well as from poor to rich (drug traffic and usury). Illegal income should be confiscated and returned to its victims by justice in its function of protector of the individual, not for reasons of income policy.

The justification for the libertarian entitlement theory is based on the principle of contract theory that no-one can have a legitimate objection to any action which leaves him as well off as he was before. If everybody enjoys the income to which he is entitled, nobody can complain; while if we take such income away from somebody that certainly gives him a good cause to object.

What about goods to which no individual holds any legitimate claim? Nozick considers that question irrelevant because - he argues - such goods do not exist. As long as nobody has any use for a good, it is not an economic good and no one will claim ownership. As soon as somebody has a use for it, he will - by claiming it - obtain a legitimate entitlement to it and thus become a first owner through what Nozick calls ‘original acquisition’. As nobody had any use for it, there can be no justifiable objection. Once a good has become the legitimate property of an individual, its ownership in a democratic society can change legitimately only through voluntary transfer, usually by selling it or giving it away. Any voluntary transfer respects the interests and opinions of all parties to the transaction, as perceived by them; it is then legitimate provided the transaction did does not impinge on the interests of third parties.

The justification of the libertarian theory of income distribution therefore depends on its ability to establish an entitlement theory covering all wealth and income. We have limited the discussion - as Nozick does implicitly - to wealth which is ‘external’ to the personality of individuals, as that is the only one that could be an economic good. Libertarians as well as all democrats subscribe to the respect of the autonomy of the individual and the duty of the state to protect it, including all personal attributes such as talent.

The talent of individuals and the capital which this talent represents are the inalienable property of the individual and beyond taxability; only the wealth acquired through the use of such talents could be subject to contestation. However evident to many, this view is not shared by everyone; egalitarians have proposed, be it tentatively, a lump-sum taxation on talent. Such views will be dealt with in the next chapter about the egalitarian theories of income distribution.

The three main objections to Nozick's theory are:

-	Original acquisition does not always leave all others as well off as they were before and therefore will not always generate a legitimate entitlement.
-	For practical reasons a market economy in a democracy has to accept as not-illegal many transfers which cannot be qualified as legitimate. In case these generate a definable distortion of the income distribution, the state has the obligation to redress it to the extent it can do so without giving cause to legitimate objections.

Not all income obtained by individuals in legitimate transfers results in an entitlement of that individual to the full amount of that income; part of legitimate income may be due to production factors owned by society as a whole and generates common wealth to which all hold a legitimate and equal claim. Because of this, as well as of the first objection, goods to which no individual holds an entitlement do exist.

4b.2.1 Original acquisition. The legitimacy of both the original acquisition and the acquisition by transfer are deduced from the same principle: any acquisition is just if it leaves all other people as well off as they were before the acquisition. That also is a principle of pure contract theory. This principle however does not lead to Nozick's conclusion of a minimal state.

First, Nozick errs in his implication that any action is just if no-one has uttered a legitimate objection by the time it is performed. Such an action can only be qualified as ‘not-unjust’, and only at the time it is performed. That is not enough to provide a positive qualification as to its future status. Until contested, any action has the status of not-unjust; The class of all not-unjust actions comprises both those that are just and that vast majority about which we have not felt the necessity to pass judgement. The qualification of ‘legitimate’ can be obtained only by taking an affirmative decision to that effect, either as a consequence of an action by an individual or by previous legislation which defines as just or unjust the class of actions to which it belongs.

We take legal action only if not doing so will lead to an injustice or condone one. If we consider an action just, we will do nothing except prohibit others from thwarting such action, which is the same course of (non-)action we would follow in cases falling outside the scope of justice, a legitimate convention as long as the item remains uncontested.

Nozick seems to overlook that the fact that an action does not harm other people only justifies tolerating that action. It does not by itself confer any other property on that action except that it is not forbidden... to the extent that it does not harm others!!! As long as it remains uncontested, we assume that it does not harm others, and will act as if it was not-unjust until we have cause to pass judgement. The qualification of ‘not-unjust’ therefore was only provisional, not definitive.

That is not a matter of splitting hairs. The entitlement theory runs into trouble precisely on this point. Suppose you stumble onto an object which apparently is not used and owned by anyone. You take possession of it and use it for yourself. As long as nobody else has any use for that object nor would contest your ownership if he knew about it, you clearly harm no one and legitimately can use it on the ground that your action was not-unjust. But if somebody claims the object, then the simple fact that you found it is not a sufficient ground to justify your ownership vis-à-vis the contestant. You will retain use of the object only if the contestant cannot make a valid case against you. If he cannot, neither of you has a claim to the property of the object, but you have the possession of it and can legitimately claim protection against attempts to take it away from you by anybody who does not have a legitimate claim.

To grant ownership of an object which is not yet owned by anyone to the first person who claims it is a matter of convention and cannot be directly deduced from the principles of

contract theory. Absolute property rights through original acquisition can be deduced from the principles of contract theory only as long as they are uncontested, in which case they are meaningless. They will hold only as long as nobody has a legitimate objection. How can we make sure no-one can have such an objection?

Nozick sees the problem but thinks he has a way out. For - he says - to deny a person access to an object by giving somebody else the property rights to it could be detrimental to that person in only two ways:

1)	it can deprive him of an object for which he did have a use prior to the moment at which the property rights were given to somebody else
2)	it will prevent him from improving his situation if at a later date he finds a use for it. Nonetheless, it does leave him as well off as he was at the moment at which the original possessor claimed property rights, for he did not at that time have any use for it.

Nozick proposes that we consider only the first condition as necessary for contesting property rights. But to an economist the statement that curtailing somebody's potential for improvement leaves him as well off as he was before is pure heresy. A state which - by following that policy - neglects the future interests of its members fails in its task as protector of rights. Nowhere does Nozick justify that preserving one's potential for improvement is not one's legitimate interest. While I cannot know the arguments which Nozick would have used if challenged on this point, I can make a good guess. For in the practice of business negotiations, a missed opportunity is never an argument for contesting an exchange of goods to which two individuals have agreed as long as no fraud or other illegal means have been involved. So why should this be different in the relation between an individual and the state?

It should not. What is wrong is the analogy. For in the situation of original acquisition as described by Nozick there is no exchange. Property rights are acquired in exchange of nothing. An exchange is legitimate if it is voluntary for both parties, and thus per definition does not harm any of them, at least to their knowledge. In the case of Nozick's original acquisition, the other party never had the opportunity to protect its future interests. For no-one can keep up to date with all original acquisitions and estimate their effect on his future interests which is a conditio sine qua non for any person to voluntarily agree to granting property rights to somebody else. To decide that it is not the job of the state to protect the potential for improvement of all its members is just a particular and subjective choice which cannot be deduced from the basic principles of contract theory.

By exactly the same argumentation as Nozick uses, we can decide (in a democratic procedure) that all existing and not yet claimed wealth is the property of all. We can - and I think we should - include in our constitution the principle of ‘res nullius, res omnii’. In any kind of acquisition of property which is as yet unclaimed, the state can fulfil its function of protector of the potential for improvement of all individuals simply by acting as the party representing all other citizens. That cannot harm the existing interests of any particular person and it would safeguard the future interests of all citizens. And it certainly does not pave the way for a communist society, for we retain a positive claim to ownership of all wealth which we ourselves have created.

In exchange for granting property rights, the state can exact a compensation which could be distributed to those whose potential for improvement would be impaired through denial of access. And/or the rest of the community could be protected against an unforeseeable shortfall of such compensation by adding clauses to these property rights. For instance, the state could transfer only certain uses of the property and reserve for the community certain other rights such as right of way or of the exploitation of as yet unknown minerals. As befits pure contract theory, it will be a matter of negotiations between two free agents, the state and the applicant. If such a clause has been added to the constitution in a democratic procedure, and if the property rights have been granted in voluntary and legitimate negotiations, then the resulting transaction would be just. Democracy would also accommodate a law stating that all real estate to which no one presently holds a legitimate entitlement is property of the community and cannot be acquired by original acquisition. Such a clause must also be acceptable to libertarians on the basis of their own arguments. Choosing for their view or mine is a matter of subjective preference, balancing the chance of a large gain for one person against the chance of a small gain for many. Arguing in favour of my proposal is that it reduces the probability of excessive and permanent individual power positions which bear no relation to their contribution to society. The decision must rest with the voters.

The most widely accepted concept of original acquisition, of an entitlement without transfer, is that everyone has the right to the fruits of his own labour, to those objects which he himself created. That right does follow directly from the respect of the autonomy of the individual which must cover everything pertaining to it. His labour and innate talents certainly are part of an individual, as are the products resulting exclusively from applying his own labour and talents. That is the only form of legitimation of property by original acquisition which can be deduced from contract theory. As will be seen in the paragraph about common goods, John Locke - the father of contract theory - probably would have concurred.

4b.2.2) Acquisition by transfer. People may acquire objects from other people by gift, heritage, exchange, or by theft, stealth or force. The first three are legitimate. The other three are not. The feature which distinguishes the first category from the second is the voluntary consent (excuse the pleonasm) of the party from whom the property is acquired.

If somebody bequeaths his property to somebody else out of his own free will, we can safely assume that his interests - as he sees them - will not be jeopardised. If he is of age, is a free citizen and if we respect his autonomy, we must assume that he is the only judge about where his interests lie. The same applies to the person who accepts the property. The acquisition of property by legitimate transfer therefore can never harm the interests of the individual from whom it is obtained or who has accepted it. Being the property of the original owner, nobody else had access before the transaction and therefore nobody else can have a legitimate objection against the transaction.

But it can happen that the transaction is detrimental to third parties. Transactions between suppliers whose net result is a price increase of a good provides consumers with a legitimate ground for objection and therefore are unjust. If a transfer harms the interests of third parties, libertarians require that the state either nullifies the transfer or - if that is too difficult - that it

compensates the injured for their loss and thus removes any legitimate ground for complaining. If the state does so, all transfers in a market economy will be just. If it does not fulfil its job as it should, the proper action - libertarians say - is not some redistribution of income, but an improvement of the performance of the state in preventing and redressing unjust transactions, for instance an adequate anti-monopoly law and effective enforcement of it. Contract theory holds that an income distribution which is the result of a series of just transfers following a just original acquisition must be just, or at least ‘not-unjust’, and that the members of society can request protection of property thus acquired. The libertarian theory concludes that any policy of income distribution tampering with this distribution must be unjust.

Clearly, a single voluntary transaction between two parties which gives no other parties cause for a legitimate complaint must be accepted as not unjust. But that still leaves the following questions to be answered (the list does not claim to be exhaustive):

1)	is it possible to ensure that all transactions are indeed voluntary?
2)	can the state insure that no voluntary transactions will - either individually or as a cumulative effect - harm the legitimate interests of third parties, that no unjust transfers can occur?
3)	if not, can the state insure that all damages resulting from unjust transfers will be redressed, especially negative effects which these transfers may have on third parties?

If the state cannot prevent or redress unjust transfers, what then? Obviously the inevitable imperfection of any human venture will occasion incidental mishaps, but that is not the issue. Of real concern is that the very organisation of the economy in a libertarian state might entail systematic failures of the protection of the rights of third parties which the state cannot redress on a case by case basis. There are good reasons for expecting that such systematic injustice can and will occur in libertarian states. The hypothetical ‘original’ situations - which the various contract theoreticians (with the exception of Rawls) use to justify their view of contract theory and income distribution - have one feature in common: they deal with extremely simplified models involving no complex interactions. Apologists of the perfection of the free market economy assume high demand or supply elasticities and no time-lags, which along with other assumptions are not confirmed by reality. They also ignore the cost of obtaining and processing information.

That enables them to construct economic theories - like the classical theory of the market - whose conclusion is that, if certain conditions concerning competition, external effects and dissemination of information are met, the transactions in that model economy will satisfy the condition that they are voluntary and do not impinge on the well-being of those who are not involved in these transactions. These conditions are rarely if ever met.

In the real world, transactions do not take place in the simplified and atomistic world of classical economists. Economic life today is organised in large production units. The production factors - capital and labour - themselves are often globalized by concentration of capital in a few decision-making institutions, and labour is almost monopolised by unions. Instead of atomic competition, we have sets of countervailing powers with no assurance that these are balanced as required by the respect of the condition that contracts be voluntary and have no external effects. On the contrary, today's western economies show a built-in tendency to come to agreements at

the cost of those not represented by the negotiating partners, especially consumers and future generations claiming a livable environment.

To achieve its efficiency and fairness, classical theory requires that producers obtain their profit from correctly estimating and catering to the demand. They must produce the required quantity and quality at the lowest possible cost, get the goods to where they are needed and inform the consumer of their availability. Business does try to do all that. But ‘classical’ theory also assumes that producers take the conditions of the market for a datum beyond their influence. That is a totally unwarranted and eminently unrealistic assumption. Business does not passively accept market conditions, but tries to manipulate them. Whether it can do so successfully depends on the nature of the particular market.

All manipulation of the market is aimed at creating a monopolistic position. A good case could be made - given time - for the assertion that the bulk of net profits (the return on investment above the going interest rate for government bonds) must be attributed to such monopolistic elements. Similarly, the relatively high incomes of some professions in many countries are in part due to entrance barriers which they themselves created, or to the failure of society to provide for general access to education at all levels. Modern media, especially television, enable businesses to achieve monopolistic positions by creating a consumption pattern and pricing which need not correspond with what the consumer really would consider his best interests if he had been fed unbiased information. We may argue that we are free to get any information we want. But for most of us the cost is far too high. Anyway, why should a consumer be forced to make efforts and incur expenses to protect himself against manipulation by producers? He never asked for advertising! By the very first rules of libertarian creed it should be forbidden to expose anybody to manipulative advertising for which he did not ask. But how can we ever make rules which enable a judge to determine whether an ad is informative or just manipulative?

For many years I have been party to the discussions about marketing strategy in the major firm of a certain field. And through conversations with colleagues I am conversant with what happens in other firms. Of course we talk about production and distribution costs, and the wants of the consumer. But the dominant theme is how to increase market share without losing margin, or vice versa, and our main tool is to create a distinct and captive market segment, by cornering distribution or by buying a competitor. We add new features to our products and advertise them to the hilt; they may not be of much practical importance to the user but they provide unique selling points. A very powerful and often used extra ‘quality’ is the perception of reliability of the supplier created by the impact of massive advertising of a brand name and by playing on the fears of a consumer who in most cases is incapable of judging the real quality of the competing products.

True, the state does forbid certain practices which limit competition, and does attempt to protect consumers against manipulation. But the practice of making and enforcing laws in this field shows how difficult it is to regulate. We can safely say that the law has been powerless to curb any but the most glaring abuses. In fact, really effective regulation would completely suffocate economic life by robbing our market economy of its freedom and flexibility which are at the core of its efficiency and dynamism.

The complexity and interdependence of modern economies preclude any effective elimination of monopolistic profits; we cannot even define and measure these profits with any reasonable degree of accuracy. In many cases we cannot in any operational way distinguish between those monopolistic profits which form a powerful incentive to real and useful innovation and those which only increase the profits of the producer at the expense of the consumer but do nothing to further economic growth. This is not a Philippic against the capitalistic market economy: I have nothing better to offer. But we should also acknowledge its weak points and - if possible - do something about them.

However, we can state with confidence that monopoly profits tend to increase inequality of income. In addition to legitimate transfers, the income distribution thus is shaped by unjust transfers which the state should have prevented or redressed on a case by case basis, but has been powerless to do so. To the extent that it can be done without impinging on legitimate claims, justice requires that the state should attempt some compensation through a redistribution of income. The state could look for procedures by which we can identify specific groups who profit most from monopolistic elements, and redistribute income through a specific tax on those groups. Usually such attribution of monopoly profits is not practicable. In that case, the state might be justified in redressing that injustice through a progressive tax rate.

Redressing in this way the injustice of monopoly profits poses the risk of creating another injustice by taxing profits which did not arise from unacceptable monopolistic elements. But if carefully applied by erring on the safe side (that is in favour of those whose income is taxed) the net result will be a fiscal policy and an income distribution which are less unjust than if we had left all monopoly profits to business. Thus the entitlement theory leaves room for some redistribution of income which redresses at the macro level some of the injustice which the state could not deal with at the micro level of individual transactions.

In a market economy, transfers can and do generate another class of injustices through ‘external effects’: effects of transactions (including production) which are not reflected in the transfer itself. Because they do not directly affect the subject of income distribution, they are largely ignored in the discussions. Most prominent are the negative effects: pollution, exhaustion of natural resources, damages to health (smoking) etc. There are also positive effects, for instance some manifestations of culture which radiate beyond the direct satisfaction of those able to pay for them. Because external effects often cannot be redressed on a case by case basis, the state must deal with them by more general means such as taxes on energy or subsidies on certain forms of culture. As external effects do not affect the principles of income distribution, the measures taken to deal with them should be as congruent as possible with the principles of income distribution agreed upon on other grounds. But they saddle the state with a task which inevitably will involve tampering with the generation or distribution of income.

4b.2.3) Common goods. The father of contract theory, John Locke, was eighteen when the treaty of Westphalia put an end to thirty years of war which in terms of percentage of population killed exceeded by far either of our two world wars. In his days, there were two major means to increase the wealth at one's disposal. One was to put into culture as yet unused land. Unused land was available in such profusion that it was probably seen as a ‘free’ good, like air

in the textbooks of economics written before pollution became a household word. Easily exploitable land was already farmed. Grazing land, needing no further labour, often was open to all: ‘the commons’. To make that newly acquired land arable required an exhausting input of labour for tilling, irrigation etc. Land appropriated by original acquisition obtained its value mainly from the input of such labour. Hence Locke's condition of appropriation by original acquisition of as yet unowned objects: that one's labour be mixed with it. He left open the status of unclaimed land.

The second way to increase one's wealth was far less backbreaking and therefore more popular: to take it away from somebody else. We can understand why Locke saw as the basic and only function of a state the protection of the individual and his property, especially if this property had become desirable because of the cost and effort which its current owner had invested in it.

Three and a half centuries later, the world looks totally different. The major source of wealth today is not land, but culture. It consists of what we have called ‘social knowledge’ (see Part Three, ‘Private versus Social Knowledge’, p. 96), starring technology (applied scientific knowledge) which is the result of cooperation of generations of scientists. And it includes the application of technology by entrepreneurs investing in production goods and organising production in ever larger units requiring ever more intricate forms of cooperation. Such cooperation must be learned and is itself a form of culture.

I have not been able to find figures about the total amount which today is spent on the acquisition of untreated products of natural resources. But we can safely assume that it is a small fraction of the total world income, even though the price of natural resources is inflated far above their exploitation costs by their scarcity in relation to goods industrially produced. Without applied technical knowledge, the earth could never sustain even half of today's human population, let alone to provide the security and quality of life we enjoy in the west.

The cooperation required for the generation and application of technology could not even be conceived, let alone achieved, without some form of state. Think about private law required to establish cooperative ventures which are more durable than the whims of individuals. Think about education which in the more developed countries is (or should be) available to every member of society. Think about the whole culture to which we have access free of charge or for an infinitesimal fraction of the value it has for us. Clearly, human beings profit from a society for many more reasons than protection. We have already pointed out that individualistic theories of man amputate him of his most important feature: that he is a social being, dependent on society not only for protection, but for his whole way of living. Without that social element, we would have neither scientific knowledge nor moral theories. What an individual can gain by engaging in lawful transactions must to a large part be attributed to culture in its widest sense. A basic question for any theory about a just income distribution should be: who is entitled to the fruits of the productivity of culture?

Except for some items temporarily covered by patents, the whole body of culture is in theory at the disposal of whoever makes the effort or has the ability to use it. There is no practical way in which we can restrict the access to most of that culture without infringing on the most basic rights

of men. We also have no legitimate cause to do so, for the simple action of taking cognizance of knowledge by lawful means will by itself never impinge on the legitimate interests of another individual. Only the use to which such knowledge is put can generate a legitimate objection.

Question: ‘if somebody increases his wealth by using a resource which is not the property of any other specific individual or group, is he ipso facto entitled to all the fruits of that action?’ The case is similar to the original acquisition of natural resources except that culture does not exist independently of men, but finds its origin in the cooperation of individuals which is possible only in an organised society.

In terms of justice, the status of both unclaimed natural resources and of culture which is not protected by patents is totally indeterminate: no individual has a legitimate claim to it. Its status is an object of democratic decision-making. Evidently, a decision about it must be independent of any specific case: the general status of such property should be one of the most important provisions of the original contract, of the constitution. I for one would vote for the proposal that all resources to which no individual holds a legitimate claim should be the property of the whole community, each member having an equal claim to them. This proposal meets the conditions required by democracy.

First, nobody can object to it on the grounds that this law would harm his legitimate interests by impinging on his entitlements, as we are considering only wealth to which no individual holds a legitimate claim. Secondly, the principle of subjective equality of all members of society entails that if a piece of wealth is not subject to the claim of a specific individual or group, then all members of society have an equal claim on that wealth. Society can claim it in their name and all members of society are entitled to an equal part of that wealth or the revenue it generates. Being deduced directly from the democratic principle, that rule is independent of time, place and the nature of that wealth and can be applied to all as yet unclaimed, and possibly unknown, wealth. Those who are in favour of the law can claim that their legitimate interests will be violated if society does not protect their share of such wealth by turning that rule into law and enforce it, while no one can have a legitimate objection to it.

The state will then - in the name of the community - become the owner of common culture and of land and natural resources to which nobody as yet holds any entitlement. Many societies have known common grazing rights. Once the provision is in place, the state has the right to extract compensation for the use of common goods in the name of all citizens. In the case of culture, that generates a practical problem. In theory we must determine the marginal contribution of various factors of production and claim for the whole community only that part of the profits which is imputable to the use of generally available culture. Today - and to my mind for the foreseeable future - determining those profits is impossible. As an alternative we might consider as common, and thus taxable, all income above that which cannot, by the judgement most favourable to the taxed individual, be attributed to his own merit. Such taxation would be legitimate as soon as we can make a good case that whatever income remains after taxation is higher than the income which is imputable exclusively to his own efforts. Given the overwhelming preponderance of collective culture in today's productivity, it is not difficult to justify a moderately progressive income tax on those grounds.

If the community - through the institution of the state - taxes away part of the contribution which collective culture and natural resources have made to the income of an individual, that does violate nobody' democratic rights. But it is not required for the protection of these rights either. The justification for or against such taxation cannot be found in the argumentation of libertarians, nor does it follow from the classical contract theory's reference to some actual or hypothetical ‘state of nature’. But it will be shown (see ‘A Grey Area: Common Goods, p. 184) that it is possible to devise a treatment of common goods which will meet the requirement that the resulting income distribution, if not qualifiable as just, will at least be democratic and cannot be branded as unjust.

4b.2.4) Summing up: The two points of departure of the libertarian theory of income distribution (no a priori shape of a just distribution can be defined and the legitimate entitlements of individuals are not available for redistribution) are compatible with contract theory. The conclusion that the primary distribution of legally obtained income is also the just one is not.

4b.3) The Egalitarian Income Distribution.

On May 9, 1975, the labour government of the Netherlands published a policy statement on a general income policy (‘Interim Nota Inkomensbeleid), hereafter simply called ‘Nota’ which to my knowledge has no counterpart in any other western democracy. It stated that the primary income distribution in our market economy is unjust, and announced that it would give high priority to the achievement of a more acceptable distribution of income.

To define that acceptable income distribution, the Nota referred various authors, the most important of whom are Roskam Abbingh, J. Pen, W. Albeda, C. de Galan and J. Tinbergen. All these authors postulate that only an egalitarian income distribution is equitable, equitable being defined as an equal well-being for everyone covering all elements of well-being which are not purely subjective. The major elements considered were income and the sacrifices or benefits associated with the acquisition of that income. (As I will in any case reject that argumentation, I can abstain from further inquiry into the nature of well-being.)

Except for Roskam Abbingh, their justification is purely definitional, never explicit. They were well aware that any attempt to justify a specific shape of the income distribution as the only one meriting the qualification of ‘just’ would entangle them in endless discussion ultimately resting on a subjective choice. They acknowledged that such a discussion could never lead to any proof commanding universal acceptance. Some, notably J. Tinbergen, considered that the existing income distribution which left some to fend for their life in abject poverty while other wallowed in luxury could never be justifiable (a position which is compatible with this book). Rather than to waste time in theoretical discussions about an ideal distribution, he set about alleviating the plight of the poor and accepted the egalitarian point of view as evident for all people of good will.

Roskam Abbingh asserts that he has found such a justification, but that proves to be a purely theocratic one. He imposes on society the biblical command to love thy neighbour like thy self. For a discussion of his work the reader is referred to Volume Two, ‘Roskam Abbingh: The Ethics of Income Distribution’, p. 355.

Politicians were not so cautious. The Nota devotes a few words to a justification and thus immediately falls into the trap which the intellectually more honest scientists avoided. ‘The starting point of the government is the fundamental equivalence (gelijkwaardigheid) of all men.... The consequence for the income distribution is that there are no a priori reasons for surmising that there are differences in value between people which should lead to a difference in income’. The Nota acknowledges that people are different, and enumerates those differences which can generate justifiable or even mandatory differences in income, namely whenever the differences are both:

-	identifiable, and preferably quantifiable
-	necessary to compensate for differences in the sacrifices (disutilities) involved in obtaining that income.

In short, income differences are justified and required to the extent that they are needed to achieve an equal welfare for everyone. Welfare is defined in the Nota as that utility which people derive from their income and which can be identified in an objective way. It is tied to the income which remains after correction for the sacrifices required to obtain it, some kind of net utility. Certain activities by themselves provide utility (professional satisfaction or status are given as examples). Such utilities are to be added to the taxable income. We can ignore for now the difficulties in defining some kind of objective utility, for we should first decide if and to what extent the requirement of equal welfare, however defined, is compatible with the notion of equality as implied by democracy.

Following its otherwise undefined ‘equivalence of all people’, the nota then states that differences in welfare conflict with this equivalence because giving people different net incomes implies that society values them differently as persons, thus implying that:

-	the net purchasing power which a person commands reflects the value which society places on him as a person
-	this kind of valuation is morally justifiable.

Clearly, that is not what they meant. But then, what did they mean? In what sense are all people fundamentally equal? All authors of the left simply ignore the problem. Or they shove it under the rug by charging without further justification that it is a disreputable hobby of rabid individualists to limit - as is done in this book - the respect of equality to the valuation of the individual's voice in social decision-making.

They claim that their concept of equality is evident, and that it is a waste of time and energy to engage in a lengthy and metaphysical discussion to justify a position which every individual - if he really is honest - will admit as evident. Yet even the egalitarian Albeda and de Galan note in their book that ‘in our society it is considered reasonable that people should be able to influence their (net) income’. If that is reasonable, then those who have succeeded in obtaining a

higher income than others are entitled to a conclusive justification of why such extra income is to be confiscated in the name of justice. Referring to an unsubstantiated ‘evidence’ - which I for one fail to see - will not do.

And I am not alone. I have made some small exploratory surveys based on a very simple example. All results point to the conclusion that people see the products of their own activity as basically their property, as an extension of their personality, and thus not as something which society can legitimately dispose off without their consent. Employees in a common venture who can command a higher salary because they have a special and scarce talent, feel entitled to at least part of these extra earnings. Controversy only arises when questioned about the part they should retain and the part the state can claim as a contribution to the financing of its tasks. Depending on the respondent, these tasks might or might not include a reduction of income differences, but never their total elimination.

Egalitarians cannot duck the obligation to answer the question ‘where does the sphere of the individual end and that of society begin?!’ They might answer: ‘man is a social being and therefore there is no “natural” demarcation line between these two spheres.’ They would be right. But then there also is no ‘naturally’ just distribution of income.

They could take the radical step of proclaiming as ‘natural’ boundary of an individual the surface, the epidermis, of his physical body. Any object outside this body, whether he made it himself or not, would then not be part of his personal sphere. Property would be nonexistent, and privacy possible only by becoming a hermit. Short of such a radical decision, the sensible question to answer is not where a mythical ‘nature’ has laid down the demarcation line, but where we decide to put it. Whenever it is contested, a democrat cannot avoid - by referring to an undocumented degree of evidence - the obligation of explicitly taking such a decision and justifying it, the more so because whether people accept the egalitarian principle as evident or not can be settled by fairly simple empirical tests.

It is characteristic of the level of the discussion in leftist and in rightist circles that such a validation has never been attempted. Clearly none of them really wants to submit his view to democratic decision-making. Having paid lip service to democracy, both in the end only want to impose on society their own ethics, regardless of the actual support it has. Neither has really understood what democracy is, what the integrity of a scientist in such a society is about (see PART SIX).

Proponents of the egalitarian income distribution also use another argument. They subscribe to the fourth democratic principle of pure contract theory: whenever society has something to distribute to which no-one has a legitimate entitlement, all members have a claim to an equal part of it. As is done in this book, egalitarians see a modern society as a cooperative venture. But nowhere have they justified why that should lead to an egalitarian society. For these axioms can only justify an egalitarian distribution if all income which is generated in that cooperative venture is the legitimate property of that venture, of society, and not of any individual. The error they make mirrors that of libertarians who assign all income to individuals. While libertarians deny the existence of common goods, egalitarians know only common goods, they deny the

existence of personal and unique achievements to whose fruits these individuals may hold a legitimate entitlement. That - as said - implies a view of where the personal sphere ends and the social one begins which is not shared by everyone, to use a British understatement.

Egalitarians do acknowledge that income differences play a decisive role in the generation and allocation of factors of production and that without them our economy would grind to a halt; a consequence which even egalitarians consider unacceptable. That is why Albeda and de Galan coined another concept, namely that of an ‘acceptable’ income distribution. They consider ‘acceptable’ those income differences which are necessary for the functioning of the economy, even though they remain unjust. Thus arises Okun's concept that the government must balance justice against efficiency. That notion has been dealt with in chapter ‘Justice versus Efficiency’, p.153, which concludes - with Rawls - that justice is not a negotiable commodity, that it is uncompromising.

If justice is to have any real meaning, then the verdict that the claim of a person is legitimate generates for society the obligation to enforce that claim. If the egalitarian distribution is the only just one but we settle for another, all those whose net income is below average are left with a legitimate claim on their share of that difference. Albeda and de Galan might answer: ‘because we tolerate these differences, your income - although below average - still is at least as high or even higher than it would have been if we had applied the just and egalitarian distribution; so you have no legitimate cause for complaining’. That puts on their shoulders the proof that the proposed level of inequality is necessary. Until they have succeeded in providing a reasonably objective proof, the person with the below-average income will rightly believe that he is treated unfairly by society. Anybody who holds that it is possible to supply such a proof ipso facto proves that he is totally ignorant of economics. There is simply no method which enables us with any reasonable degree of accuracy to predict what the average income would be in a society which enforces a more egalitarian income distribution. There is no ethical means to convince the poorer that they would be so much worse off in a more egalitarian society that this justifies an injustice.

The egalitarian view of a just income distribution thus not only lacks a convincing foundation, it also closes off any path of navigation between the Scylla of accepting an income distribution officially branded as unjust because unequal, and the Charybdis of avoidable poverty if we enforce the egalitarian one. In both cases our society will be considered illegitimate by a large portion of its members. Far from leading to a more cooperative and peaceful society, imposition of the egalitarian concept of a just income distribution will simply shift the odium of aggressor in the war of classes from one class to the other, as indeed it did in Holland.

The egalitarian income distribution has spawned some weird offspring. A beauty is the lump sum taxation on talents proposed at least tentatively, amongst others, by Tinbergen, to be implemented as soon as psychology reaches the proficiency required to objectively and precisely measure somebody's talent and to establish with reasonable certainty the primary income which he will be able to command. The reasoning leading to the proposal is sound: in a totally egalitarian society, people with talent will not be able to translate the application of that talent into a higher income. They will then have no incentive to put their talents to that use which is

most valuable to society. I for one would probably have tried to obtain the job of reporter for an outdoor magazine. By imposing on people a lump sum tax equal to the difference between the average income and the salary of the job which does justice to their capabilities, we force them to perform to their full capability in the best paying job of which they are capable. If the job market works, that will also be the job generating the highest social utility. Is that what we really want? While the income distribution might then be just, can the same be said of society as a whole? It is well known that the talent for mathematics often goes hand in hand with one for music. The same person thus might have the talent to become either a highly paid system engineer or a violinist in the Rotterdam Philharmonic which will pay him substantially less. A lump sum tax on talent will make that choice for him! It will also have the curious consequence that if he still chooses for concert violinist, his net earnings will be much lower than those of his colleagues who did not have any other and highly valued talent. Is that justice? Can a society which has abolished the freedom of choosing your career be called democratic? Not if defined as in this book.

We have now dealt with the most glaring theoretical shortcomings of the egalitarian income distribution. Practical application will also generate problems which disqualify it as a normative basis for an income policy, for not it only pits justice against efficiency, but also justice against justice.

We have no means - and will not have in the foreseeable future - to determine with sufficient certainty all factors responsible for income differences between individuals. All such studies show only significant differences between large groups but leave more than half of the actual income differences between individuals unexplained. Even if psychology should at some point become capable of identifying talents with a sufficient degree of certitude (which I strongly doubt) we cannot from the measurable factors deduce, at the level of the individual and with the any acceptable degree of precision, the income he will be able to obtain if he chooses the most promising career available to him and invests an average effort in obtaining it.

If we choose for a market economy and attempt to approximate the egalitarian distribution through taxation, we then lack the data required to devise and implement a concrete tax policy and always will over or under-compensate. Under-compensation generates a legitimate complaint by the person who is thus shortchanged. He would have no cause to complain about over-compensation But if somebody is over-compensated, then somebody else must necessarily be under-compensated. Whatever its theoretical merits, if we accept the egalitarian distribution as the only just one, its practical implementation will always create injustice.

As will be shown further on, the democratic income distribution (following from the application of the democratic principle) is in its material aspects quite similar to Albeda and de Galan's acceptable distribution. The difference between them mainly lies in the name we give them. Egalitarians reserve the qualification ‘just’ for a fictitious distribution ensuring equal welfare for all and call ‘unjust but acceptable’ the one at which they aim in practice and which is similar to the democratic distribution. Although both views lead to a similar distribution, making the distinction is not splitting hairs because the choice engages the whole legitimacy of government decisions.

4b.3.1) Summing up: The proponents of the egalitarian distribution have provided no arguments which in our democracy could justify its qualification as the just one. Worse, if we investigate the consequences of its application we must conclude that its imposition must lead to injustice if literally applied. Mitigated by considerations of efficiency, it becomes the ‘acceptable’ distribution but loses its legitimacy. As that distribution is similar to the democratic distribution but lacks the last one's qualification of not-unjust, it is redundant.

4b.4) The Two Boundary Conditions of a Democratic Income Distribution.

Having rejected both the libertarian and the egalitarian distribution, I will now develop the considerations of income distribution which follows from the adoption of pure contract theory of justice. As pure contract theory is based exclusively on the democratic principle, the result will be called the democratic income distribution. It has much in common with Rawl's; the interested reader can find the similarities and differences in Volume Two, ‘Rawls’.

The very existence of people advocating the libertarian or egalitarian income distribution proves that unanimity for any specific ‘just’ distribution is not in the cards. The democratic principles of justice entail that in the absence of unanimity about the definition of a just distribution, we will have to accept as just one to which no citizen can have a legitimate objection. That will be our target.

Clearly, one cannot - from any a priori theory or principle - deduce the shape of a democratic income distribution, for that shape will result from applying the democratic decision-making process whose outcome cannot be predicted. We can however define some constraints, some boundaries, on that distribution. Such a boundary arises whenever trespassing on it can be taken as a proof that the decision or the process leading to such trespassing cannot have been democratic.

The two boundary conditions which any income policy must respect if it is to be called democratic are deduced from the concept of democracy as a voluntary association of autonomous individuals and from the resulting democratic principle.

4b.4.1) Boundary condition 1: a subsistence level for all. In a society generating substantial surplus over what is necessary to provide everybody with a subsistence income nobody should die of want. That condition today is met by all developed countries. It is a minimum requirement for democracy to function and is justified by the following argumentation.

We can expect most people to value their life above any other material wealth, at least if they are rational. For no material object is of any value unless somebody is there to enjoy it. One may knowingly sacrifice one's life for children, honour, science, country; but hardly for a car or a swimming pool.

There have always been people willing to risk their life in the pursuit of a big gain. Such behavior is not irrational: it results from the totally subjective balance between the fear of death and

the fear of spending the rest of your life in the knowledge that you missed the opportunity to do so as a wealthy man. Some may even relish the excitement. In terms of rationality, their choice can be considered neither superior nor inferior to those who reason that it is not worth risking one's life for any material good not essential for survival.

Fortunately pure contract theory does not have to take a position on the rationality of personal choices, which is an advantage it has over for instance Rawls' theory. The democratic principles hold that any non-vital policy which results in a loss to a certain person can be justified - if challenged by that person - only if it provides compensation for that loss. If that loss is his life, compensation is impossible whenever the person incurring the loss of life is one of the many who would never risk their life for some good which is not essential for survival. A majority decision in favour of a policy which might result in some people dying can be democratic only if proven vital to society. Given the stakes involved, ‘vital’ must be taken very literally, like war or some other national emergency putting at stake the lives of many others.

Simply put: given the fact that many people would refuse to sign a contract which - in exchange for a chance of obtaining some wealth above subsistence level - requires risking their life, any social contract containing such an element will certainly not correspond to the will of a substantial portion of the population; in which case the society could not be a voluntary association.

In addition, that condition is mandated by the first rule of designing a contract, any contract: it should never contain clauses which we cannot reasonably expect the parties to meet. We can expect even law-abiding citizens who have signed the contract to renege on its clauses when confronted with the choice of dying of hunger or stealing a loaf of bread.

The boundary condition of a subsistence income for all applies to all democratic societies having sufficient resources to provide such an income, for the democratic principle has priority over considerations, including the currently fashionable argument of losing the ‘competitive edge’ of the nation against other nations.

Satisfying the first boundary condition is vital to a democratic society and is an example of how and why the instrumental view of justice in pure contract theory does not lead to classical utilitarianism.

This boundary condition also points to an obligation for all those who want to ‘export’ democracy: they must ensure that the ‘importing’ society can and will provide a subsistence level income for all its citizens. If they cannot, the ‘export democracy’ must be adapted to that circumstance.

Another argument in favour of that condition is found in Volume Two, the second alinea of ‘The conclusions of the historical review of contract theory’, p. 337. The functions of the state must, he says, include at least the guarantee that anybody who is willing to do so is provided with the practical means to express his will without coercion by any other individual. That implies a limitation of power of other individuals and at the very least the provision that nobody is totally dependent for his minimum subsistence income on the will of somebody else.

4b.4.2) Boundary condition 2: respect of entitlements. We agree with libertarians that the state has to protect the possessions to which an individual is entitled: that obligation follows from the respect of the autonomy of its members. But we have refuted their assertion that these entitlements exhaust the total wealth of a modern developed society. We also hold that the state has more tasks to fulfil besides the protection of the individual and his property. The above mentioned boundary condition one defines such a task, namely the provision of a subsistence income. Other functions of the state will be presented further on. Even libertarians agree that the state is justified to tax income to which individuals are entitled to cover the costs of expenses which are vital to the society, mainly providing protection; they might even agree to a subsistence income. The bone of contention is the taxation required to pay for other functions. As soon as that would impinge on income to which citizens hold an entitlement, these can legitimately object to this taxation and consequently to the function which makes it necessary. Specifically, considerations about a desirable shape of the income distribution can never justify an encroachment on entitlements.

Our second boundary condition therefore is that the state must keep its hands off, and must protect, those possessions to which an individual is entitled, with one exception: to collect the means to finance the functions of the state which can be directly deduced from the democratic principle. Other functions can be legitimate only if financed out of wealth to which nobody holds an entitlement.

4b.5) A Grey Area: Common Goods.

The subject of entitlements has already been broached when dealing with the libertarian distribution. Pure contract theory unconditionally acknowledges individual entitlements only whenever the property subject to that entitlement owes its existence to the individual claiming it. Society will also have to respect existing rights to property which was not unjustly acquired. That leaves open to discussion the status of two kinds of goods:

-	natural wealth which is as yet nobody's property
-	culture which is not protected by patents, author's rights etc.

The status of such goods should and can be settled in the constitution which:

-	must stipulate the respect of all presently acknowledged entitlements unless it can be shown that the claim was patently unjust
-	can (and to my mind must) lay claim in the name of all members of society to any present and future wealth to which no individual can prove to be entitled.

In its function as the guardian of such common wealth, the state must monitor all claims of individuals to goods which might be common property, and contest these claims as soon as they are put forward. For if uncontested, a publicly made claim would provide the owner with a justifiable objection to any withdrawal of his property rights at a later stage, as such a withdrawal would leave him less well off. The burden of proof will fall on the state, and proving that such a withdrawal is mandated by justice will often be difficult or even impossible. Also, legitimizing the collective ownership of goods which are nobody's property before somebody has

claimed them will be far easier and cause less resentment than convincing a possibly longtime and bona fide user of a good that his possession is unjust and that he has to return it to the state or pay for its use.

Decisions about common goods raise two questions:

-	How should society decide whether something is a common good or not and how can it arrive at a decision if there is no clear-cut answer?
-	if it has decided that a good is common property, what to do with it: invest or distribute?

The answer to these questions depends amongst others on whether it concerns a private or a public good.

4b.5.1) Private common goods. A good is private if its nature enables us to restrict its use to individuals who have paid for it. It is marketable if it is both scarce and of value to some individuals. Examples of private goods which could be proclaimed to be common property are land and mineral rights to which as yet no individual holds an entitlement. Products of human effort such as crops or artifacts clearly owe their existence to individuals, who by that fact are entitled to them.

In case the constitution provides for public ownership of all goods which are not (yet) subject to entitlements, defining which goods are common property is mainly an administrative and political matter, namely establishing the laws defining common property and publishing and keeping up to date a list of good designed as such, complemented by a procedure for settling disputes.

The second question, what to do with marketable common goods, is answered by the democratic principle: all members of society have an equal claim to a share of these goods. Society can distribute the wealth which these goods represent. Or it can consider them a capital which is to be preserved and invested. In that last case it might distribute the return, for instance as a preferred source out of which to finance state functions. What to choose is a matter of democratic decision-making.

For the sake of brevity and because they are an exception in a modern developed society where the entitlements to natural resources have been settled long ago, I will not pursue the subject of marketable common goods any further.

4b.5.2) Public goods, for which we cannot exact a price, represent far more wealth that most people would expect. The standard example of a public good, and the only one acknowledged in the writings of classic libertarians, is protection (provided by the military, our institutions of criminal law and the police).

As argued in the paragraph devoted to the libertarian income distribution:

-	not all private goods can generate entitlements by original acquisition
-	not all transactions generate an entitlement to the totality of their proceeds; part of them may be unjustly acquired or attributable to the use of common goods.

Common wealth has received little attention, probably because the theory and writings of economics mainly concern private goods because we are mostly concerned in our daily lives with private goods. We tend to forget that the most important factor of production in terms of contribution to the national product of a modern western society is culture and that the bulk of that culture, of social knowledge, is a public good which is freely available. It represents wealth to which nobody holds an enforceable entitlement and thus can be proclaimed to be a common good.

A libertarian like Nozick would probably object to the notion of culture as a common good. He would argue that the creator of a new piece of culture, an author, painter or scientist can - in negotiation with a publisher, art lover or business firm - exact a compensation for his book, painting or discovery. In real life, that is rarely so: the market position of the creator of culture usually is extremely weak. It varies widely from one kind of product to another, and is partly determined by the way we have chosen to organise our society.

For the market to work, the supplier of culture should be able to exact a remuneration which is closely related to the utility which his product has for the final user. Movies, theatres, pop concerts - whose only benefit is the direct gratification of the needs of the audience and whose access can be rationed - have the nature of a private good. The situation becomes less clear as soon as the manifestation of culture pretends to have a more comprehensive function than direct gratification.

Take art. The discrepancy between the remuneration of an artist and the value which his work often achieves after he has lost ownership of it is well publicised. And there is widespread perception that the contribution of art transcends its direct utility to individuals who enjoy it.

The farther removed from the direct gratification of consumer wants, the worse the market position of the creator; the most fundamental creations which are in the long run the most beneficial to mankind often are also the least marketable. We have already mentioned the artist, but the market position of the mathematician, philosopher or historian is even worse. Once published, their ideas and findings are at the disposition of anybody who has paid his subscription to a library: they have become a public good. From the market, an author can get only the royalties paid by the publisher which, for these kinds of works, vary from negligible to nonexistent. The difference between their utility and the royalties is wealth to which no other individual can exercise a legitimate title.

The forms of culture which have by far the highest impact on the income of society are mathematics, empirical science and technology. Sometimes its creator can cash in on the benefits by obtaining protection for his product in the form of patents etc. Even then, it is exceptional that an inventor obtains a remuneration which is commensurate with the value which his invention has for society. Firstly, patent rights expire; after expiry, the invention becomes a public good; by now only a fraction of all inventions is still covered by patents owned by the inventor. Secondly, the inventor's negotiating position is usually weak. Today, most inventions can only be commercialised by large firms. Their short-term survival is not at stake in the negotiations, while that of the inventor often is. And only big firms can afford the legal skills required to pro-

tect the patent against infringements by competing firms which can command equal legal facilities. And because of the interrelationship of all culture, the contribution of new ideas and inventions will radiate free of charge beyond their immediate applications.

To sum up: in western democracies the bulk of the most valuable creations of culture, such as research in all branches of science, mathematics, philosophy and art (the list is not exhaustive and the order is gratuitous) represents an enormous wealth which is both public and common, and to whose fruits all citizens are entitled in equal parts.

To the extent that the market cannot fulfil that role, the state is responsible for providing:

-	the environment and the resources required for the generation of culture
-	equal access to common culture, especially education
-	an equitable distribution of the wealth it produces.

4b.5.3) Ensuring the generation of culture. Libertarians have eyes only for the contribution if individuals and tend to ignore the social process which is just as important a factor for the generation of culture. New culture builds on old culture which is available free of charge, in a process of cooperation which must be nurtured by society. The intellectual prowess of the rare genius is outstanding only in comparison to the average achievements of other individuals, whose aggregated contribution - while anonymous - is immense and provides the indispensable basis on which the genius could build.

He must obtain an education which does justice to his talents, he must have access to all available culture which can be useful for his work, he must have the use of necessary material (laboratories, computers, paint, paper, typewriters etc.) and must be able to communicate with the rest of the cultural community. That requires institutions. And of course he must earn a living. Somebody has to pay for all that, and do so before any income is generated. The market can fulfil the job of allocating such resources only if the culture has the nature of a private good, and that - as explained - is not the rule in those fields of culture which contribute most to the survival of mankind. Furthermore, the transactions in the market will be just only if the market positions are reasonably balanced, which usually they are not.

If society wants to reap the full benefit of culture, and if voluntary contributions and the market are insufficient or too unreliable, the state must ensure that sufficient resources are allocated to the generation of culture. It must ensure the financing of the necessary institutions and of the livelihood of innovators. By doing so, it also fulfils another task: redressing the injustice of the unequal market position of the creators of public culture. It must provide some compensation for income lost because of this inequality and exact a price from those who directly or indirectly benefit from it to finance that compensation. Because of the factors explained in the previous paragraph about public common goods, the state cannot fulfil this function on a case by case basis. To generate culture, the best one can do is to create a favourable climate and try to make it possible for anyone so inclined to participate in that common venture.

One function of the state in furthering culture can be deduced from our principles of justice: society it must ensure that everybody has free access to all public culture, and can obtain the

materials etc. they need for their creative work. Society should ensure the establishment and maintenance of libraries whose use is free or at a cost which all can bear, that is at small nominal or at ‘income’ prices. The solution for other problems involved in common public culture cannot be directly deduced from our choice for democracy and their complexity anyway precludes treatment in what just is an illustration. All we can say is that each society will get the culture it merits. The above considerations do however show that paying for such functions need not intrude on entitlements of individuals and can be justified on the basis of a simple majority decision provided that the financing can be done out of common wealth generated by culture.

4b.5.4) Access for all: education. Democracy requires that all have equal access to that part of culture which is a common good. Clearly the culture itself (scientific theories, mathematics, the content of books whose copyrights have expired) should be provided free of charge. But the access to that culture requires resources such as books, films, schools and libraries and now the Internet. These are private goods. To the extent that they serve to satisfy the consumption needs of individuals, and as long as the state ensures that no undue monopoly profits are made in the supply of these goods, we can let the market do its job in allocating the costs of providing access. But if people require access to culture for ulterior benefits, such as acquiring an education, everybody must have the same opportunity. Such access cannot then be made conditional on paying for its costs, the more so as the costs of access bear no relation to their benefit.

There is not that much difference between the condition of a medieval man born to slavery or excluded from higher positions because he is not an aristocrat, and somebody in an information society who, while having the necessary innate ability, is excluded from its better paying jobs or is unemployable because his parents were unable or unwilling to pay for his education.

Clearly, the education of minors is a case where the market does not work because no exchange relation can be established between the user of culture (the minor) and its supplier. And because all culture transmitted by education has long ago ceased to be the property of specific individuals, access to it should be free for all. Democracy dictates that the state should to the best of its ability ensure that all minors have equal access to education.Ga naar voetnoot1

Depending on the prevalent view of the responsibility of parents for the cost of their children, that would mean:

-	free education to at least primary and high school level
-	possibly some contribution of the parents based on their ability to pay.

Free education is paid for out of taxation, and therefore by anybody who has a taxable income, regardless of the number of his children. Some childless citizens object that they are subsidising others for the privilege to have children. That objection is not justified. Apart from the above considerations, the childless have no cause for complaining, for they too have enjoyed the opportunity of free education when they were young and are in fact repaying a debt.

An alternative to free education would be to have parents pay for at least part of it through a contribution based on income above subsistence level. All parents would then be in a position to share in the cost of their children's education, thus relieving politics of part of the financing required by education. That scheme has serious flaws. First, if some parents prefer to gratify their own needs instead of paying for education of their children, society tolerates a form of inequality which is based on a personality feature (one's parents) which is just as unrelated to the matter of education as race, sex or religion. Secondly, it is the children who will profit from that education. To the extent that - because of their education - they achieve higher incomes, the most equitable distribution of the burden of education is to have it paid out of such higher income. It seems reasonable to finance the basic, mandatory education out of income tax which is perceived on above-minimal income.

Concerning higher education, the argument would be that those who profit should pay the cost. The preferred means for financing at least a substantial portion of higher education would be to grant every student a loan, to be reimbursed later on. The most equitable procedure of repayment seems to be a percentage surcharge on later income tax of the student related to the size of the loan. That tax would be a good approximation of the utility which the student de facto derived from the education and of the claim of society to at least part of the income which is the fruit of common culture. Scholarships should be reserved for exceptional cases.

The system need not cover the total cost of running an institute of higher education such as a university. For the whole society benefits from culture and the institutions which serve as its hotbeds. If the results it produces are not marketable, the research part of such an institution can be financed by the state (in its function of ensuring the generation of culture) out of the surplus generated by common culture.

There is also a purely utilitarian argument for an education accessible to all. As Tinbergen points out, the social product is maximized when the scarcity - in relation to demand - of all types of factors of production is reduced to the unavoidable minimum. In the case of the supply of qualified labour this condition entails that the availability of education should not be a limiting factor in the generation of the required types of labour. Ensuring that everybody can obtain an education commensurate with his talents and ensuring a functioning labour market thus should be a task for the state in any capitalistic democracy, a task which must be financed.

The above leaves many questions unanswered, especially on implementation. What do we do with students who subsequently earn their living abroad? How do we bridge the time interval between the beginning of the study and the earning of the income out of which it is paid for etc.? That is to be expected from what is just an illustration of the principles which should guide the design of the financing of education and which will serve as standard against which to evaluate its functioning.

4b.5.5) Culture as a factor of production. As explained in the chapter about the libertarian income distribution, the application of common culture is the major source of our productivity gains, of the profits of business and of the earning capabilities of its employees. All members of society are entitled to an equal share of the wealth attributable to the use of common culture. Taxing that part of the primary income which is generated by the contribution of such culture would not impinge on anyone's entitlements. Such taxation would provide the means to finance the functions of the state regarding culture. To do so we need to determine the part of income which we can tax without impinging on entitlements... if that is possible.

With a private good, the price of that good is an objective measure of its value. As important as it may be, culture is only one of the factors required for the production of a good. If the others - capital and qualified labour - are scarce and if the product has a market value, then their owner can exact an income over and above the costs he incurred, a ‘rent’ in the terminology of classical economists, some kind of monopoly profit. Such profits may generate a problem of income distribution, but that is dealt with elsewhere. The issue here is that:

-	if somebody has a resource - capital or talent - which is scarce and
-	if he can turn that resource into an income which is substantially above average and
-	if in doing so he applied collective culture
-	then he obtains not only a rent for that resource, but also for the common culture he applied.

For it is the combination of talented labour and (applied) culture which is productive. Pure contract theory acknowledges as entitlement only that part of the rent which follows from application of his scarce resource. If he gets more because he combined his resource with the application of culture, that ‘more’ is common income and a legitimate object of taxation.

Statisticians and economists know how difficult it is to measure the contribution of each individual factor of production to the value of the final product. That is - to some extent - possible for capital, very difficult for labour and impossible for most of our culture. Also, whenever we attempt to isolate the value of the contribution of the individual factors of production, the data we use are the amounts actually paid for them. The price which they command is to a substantial part determined by their scarcity. Being a public good, most of common culture has a market value of zero even though it may be essential to the production process and has been costly to produce.Ga naar voetnoot2 We must resign ourselves to the impossibility of determining its contribution and

just make plausible our conviction that, in a modern business environment, culture is responsible for by far the largest part of productivity.

Libertarians like Nozick would argue that by applying free common culture, nobody will be harmed either in his present situation or in his future earning ability. However, that argument only legitimises the free use of common culture. It does not on its own justify an entitlement to its fruits. If the constitution stipulates society's ownership of all common goods, the contribution of culture to the national product belongs to society. If society does not provide for the generation of and free access to common culture, it would harm all those who might have profited from it. It is then just that society obtains the means to do so from those who have profited from it in the past.

CONCLUSION. A good case can be made for taxing at least that part of the income which originates in the application of common culture for productive purposes. But it is not possible to identify and measure all the income which can be taxed while providing nobody with a legitimate objection. The principles of democratic justice are insufficient to deduce from them any precise decisions for redistributing such income. Income from the use of common culture forms a grey area in which democratic procedures must be applied to reach decisions which, if not just, at least give no-one a legitimate objection. In western democracies, a moderately progressive income tax seems to be a legitimate tool for the redistribution of common income from culture which is unlikely to impinge on entitlements. It will provide the state with the means for cultivating an environment propitious to culture.

4b.6) Functions Which the State Has to Fulfil.

Please remember that this part is only intended to show how we can apply the definition of democracy (a voluntary association for coexistence and cooperation) and the set of secondary principles which were deduced from the primary democratic principle. The functions enumerated below are directly deduced from these and are essential for the functioning of such an association.

That enumeration is not intended to be exhaustive or definitive. The general function of the state is to provide those services which require a central authority because they are both desired by its members and - being public goods - cannot be provided by individual transactions, and which can be financed without giving cause for legitimate objections.

We have in the previous chapters refuted the libertarian argument that exacting from individuals any contribution above the one needed to finance protection will necessarily impinge on legitimate entitlements, and therefore be unjust. We have already identified five functions of a democratic state related to income distribution. A sixth follows from the above definition of democracy. Recapitulating, these are:

1)	Protection of its members against each other and against outsiders (defence, police, criminal law.)
2)	Ensuring a subsistence income for all.

Ensuring equal access of all members to common culture, especially providing an education for all children.

Confiscate unjustly acquired income, mainly monopoly profits, and redistribute it to those who have been prejudiced. At various periods of history other categories may emerge, like the black market in a war, and drugs today. Also prevent or compensate negative external effects.

Administer and distribute common wealth, to which no individual can lay a justified claim. That may include skimming off that part of individual incomes which can be considered to be the fruit of the application of common wealth, especially culture, at least to the extent necessary to finance the other functions.

The right to participate in the common venture. Because it is not directly deduced from considerations of distribution, it has been neglected in the discussions about income policies and distribution. It does however follow from pure contract theory and for that reason will be dealt with further on in the chapter ‘The Right to Work’, p. 215.

Other services which members of the society might demand, to the extent that financing can be ensured without impinging on entitlements. Examples are:

-	General legislative functions beyond those that ensure protection. Foremost is the regulation of the economy. We need laws and institutions for individual contract-making and for an orderly and just functioning of the market, like protection of consumers, prevention of monopoly, and prevention or compensation of negative external effects of production and consumption. Only exceptionally is it possible to have the user pay for such functions.
-	Subsidising merit goods whose positive contribution to the community radiate beyond the utility obtained by the individuals who pay for them, especially the cultivation of public, common culture.
-	Providing an infrastructure, mainly for transportation. In some cases the user can be made to pay for their use by a toll or a surcharge on gasoline, but usually not for their total cost; for others, such as sidewalks, bicycle freeways and waterways, such financing may not be practicable at all.
-	Insurance which the private sector cannot supply: social security.

To the extent that the user cannot be made to pay for them, these functions will have to be financed out of public funds. These may be generated by the revenue from wealth owned by the society. In capitalistic societies these will be mostly mineral and other natural resources. Except for some special cases like the Gulf States, such revenue will range from inadequate to nonexistent.

That leaves only taxation. Taxation always entails a redistribution of income. Discussion about a just income distribution then requires that we take a stand on the question: what is the democratic way to tax?

4b.7) Financing State Functions.

The general principle of taxation in a democracy is: taxation should result in an equal sacrifice for everybody unless considerations of justice dictate otherwise. That evidently does not

mean an equal amount of money, for the sacrifice of one dollar by a man earning a minimum wage obviously is much larger than for a dollar-millionaire. The utility of such a dollar for somebody living on an absolute subsistence income is infinite and the money sacrifice we can require from him is zero. We will discuss the utility of money further on, but it is clear that any taxation can only be levied on income above subsistence level and ipso facto will always be progressive.

To suit our argument, we will divide the sources of state income into the following categories, in order of preference:

a)	State income from common resources, such as proceeds from concessions for exploitation of collective natural resources like oil and minerals and leases of collectively owned land, especially in cities, flows directly into the coffers of the state. Only in a very few countries does revenue from such resources provide more than a fraction of what is needed to finance even the most basic state functions.

b)	Charging users for private goods and services provided by the state. The state should provide private goods or services only if the market cannot function, for instance because of a monopoly position. Exacting a contribution from the users sufficient to cover all their costs is mandatory to prevent an injustice vis-à-vis those who have no use for them. Examples are a central bank and unemployment insurance. In the past railroads and the postal service were considered to fit that category. As justice requires that monopoly profits be prevented, the state will have to ensure that its services are supplied at market prices if such a price can be determined. If not, it must supply them at cost, including the going rates of return on debt and on equity. That will generate little revenue to finance other functions.

c)	Skimming off unjustly earned income, mainly monopoly profits. That also is mandatory to the extent that it is feasible at reasonable cost (see the paragraph ‘Acquisition by Transfer’, p.171). Income from criminal activity will be confiscated if possible as a by-product of fighting crime, but its proceeds are too small to be worth talking about. What is worthy of our attention are the monopolistic profits resulting from non-criminal activities. In most cases the injured is not an identifiable individual but the consumer in general, so the proceeds of skimming off monopoly profits fall to the community and are available for financing state functions. As said, it is very difficult - if not impossible - to define, measure and skim off monopoly profits on a case by case basis. These first three sources have the advantage that they clearly do not impinge on any individual claim to that income. Their disadvantage is that those sources which are identifiable and effectively taxable will usually provide only a small part of the financing required by state functions.

d)	Taxes on the income attributable to the use of public and common resources. In a well-organised market where all monopoly profits which were not prevented are confiscated and become state income to be equally redistributed, all remaining income acquired by legal means must be accepted as not-unjustly acquired and therefore income to which individuals are entitled (and its distribution as just)... except for that component of their income which

is attributable to the productive use of public common resources, mainly public culture but which, as said, is very difficult to define and measure. Taxing the contribution of common culture to an individual's income may be justifiable, but conform boundary condition two (see 4b.4, p. 182), the state can call upon that source only if reasonably certain that it does not impinge on income to which the individual is entitled. It must therefore observe a wide margin of error and correspondingly limit the basis for such taxation. If the state ensures, as it must, that all people have access to it and the opportunity to use it, common public culture does not introduce any distortion in the income distribution which the state might have to redress. If, to fulfil its functions, the state needs to tax the income attributable to common public culture, it is justified in doing so provided it respects the income distribution which would result from a well organised market corrected for monopolistic income.
That exhausts the legitimate sources of income accruing to the state as a by-product of functions which it has to fulfil in its nature as guardian of justice.

Taxes on the income to which individuals are entitled. That is the least desirable category. With Nozick, pure contract theory holds that taxing such income is incompatible with the most fundamental function of the state, protection, for any other reason than to provide the resources required for that protection. All other functions must be financed out of income from sources a) to d) which are the only ones which do not infringe on the entitlements of individuals. If I do not conclude to the Nozick's minimal state, it is - as stated - because:

-	In pure contract theory, the scope of protection in a modern economy must include providing for a subsistence income, for equal access to collective culture, especially education, and for the right to participate
-	I dispute the notion that income to which individuals are entitled covers all or even a major part of all income of a modern developed society.

If all decisions concerning state functions were made in a democratic way, which means that they include the functions mentioned in the previous paragraph, and if these functions are financed according to the above principles, then the resulting income distribution is just in the sense that nobody can have a legitimate objection to it

CONCLUSION: in a democracy the just income distribution is determined by the outcome of a set of factors which bear no relation to the distribution itself. The just distribution is shaped by the market and by democratic decisions on the functions the state has to fulfil and on the sources it can tap to finance them. The assumption that we can identify and measure unjustly obtained income or the contribution of common public culture to private income is of course not realistic. There remains a very large grey area in which the functions and sources of financing are only defined in principle but not in fact. To deal with that area we must call on economics.

4b.8) Enter Economics

4b.8.1) The effect of income distribution on total wealth. The fruits of cooperation depend on the coordination of individual activities, and thus on the ability of society to influence the behaviour of its members. The whole science of economics is based on the assumption that the behaviour of an individual is influenced by the economic result he expects from choosing one alternative of economic behaviour over another. Using economic incentive to coordinate behaviour of individuals implies the acceptance of differences in net well-being and a non-egalitarian income distribution. One of the few things upon which economists agree is that man has self-assertive tendencies and that therefore the income distribution has an effect on the total amount of wealth generated in a society. Even most protagonists of the egalitarian income distribution acknowledge that it removes any incentive for bettering one's economic situation through initiative and endeavour.

In a democratic society, punishment should be used mainly to prevent aggression against each other. Ensuring cooperation through force is legitimate only in cases where the very survival of society is at stake, for instance war or famine. For ventures which are less vital, such as increasing our material well-being, democracy must rely on incentives. As long as its transactions are voluntary, the market is an acceptable and democratic solution for organising the economy whenever it can be expected to work. In a market economy the income of an individual is primarily related to the value which his contribution has for other individuals. The sacrifices he has to make are mainly relevant for his (un)willingness to supply that contribution.

Note that a market economy does not mean a capitalist state. The issue here is the regulatory mechanism, not the ownership of the means of production. In our western democracies even egalitarians have accepted the market as the basic regulatory mechanism to achieve their ‘not-just but acceptable’ distribution.

Given its natural resources, in a market economy the income one can earn has an effect the total supply of factors of production through the so-called income effect: people will work harder in a given job or save more for investment if they expect to earn more that way. Other things being equal, if somebody is to earn more, somebody else must pay for it. The income increase which a person can obtain by working harder depends on the utility he thus generates for other people. He will make that extra effort only as long as this sacrifice is more than compensated for by extra income.

The second effect relies on income differences which determine the allocation of factors of production: people will tend to choose the better paying job over the one which they would have preferred irrespective of pay. How much we are prepared and need to pay for steering people towards a certain activity depends both on its relative productivity and on the scarcity of people able and willing to fulfil that activity.

These two effects affect total income. A third effect of the income distribution is generated by the fact that money income is not wanted for its own sake, but for the utility, the satisfaction, the well-being which people expect from a given income. The same dollar does not provide the

same satisfaction to everybody. Every human being different, some people will attach more importance to material wealth than others, but that is not the issue. Common sense, economic theory and empirical studies tell us that the utility derived from one dollar decreases as income increases, that someone near the poverty line will derive more satisfaction from one additional dollar than a millionaire. Mathematics prove that in this case the total utility, the total well-being, which a society can derive from a given total money income will be highest if the income distribution is level, which is the egalitarian income distribution (given any reasonable shape of the relation of the utility of the last dollar gained to the average utility per dollar of his whole income). The very shape of the distribution is therefore itself a factor in the total utility generated in a society: the more equal its distribution, the higher the utility of a given total income. That aspect is mostly neglected by utilitarians: to correctly maximise the total utility of a nation's income they must - as a cost factor - take account of the decrease in utility imputable to income inequality. Finally, there is an important external effect: inequality is costly in terms of social cohesion. The utilitarian view of justice has been rejected on the grounds of principle, so this is not a plea for a thus revised utilitarian view of justice. But highlighting these costs of income inequality might make the democratic income distribution more palatable to utilitarians.

There is wide agreement that justice and economic efficiency dictate that we reduce as far as practicable income differences which are not required for stimulation and allocation of factors of production, such as differences originating in tradition or monopoly. There is less agreement on the possibility of identifying such income differences and on the urgency and the means of reducing them. The accent should be on prevention by improving the working of the market, not on redistributing income. Suppose an individual has invested in education and training for a profession whose compensation was not contested at the moment the individual decided to join it. He then has legitimate cause to assume this income is not-unjust, which will make it hard to justify a subsequent law to increase his income tax or reduce his compensation.

4b.8.2) The optimal distribution is also the democratic distribution, provided it is adequately defined, namely as the distribution which maximalises the sum of all individual utilities, including those to which no price can be attached, for instance a democratic society. Provided that the democratic principles of justice are met, the distribution resulting from aiming at the highest total utility (well-being) of all citizens is both optimal and democratic.

Imagine a situation in which all principles of justice are met, especially the principle that no one can object to a decision which is to the advantage of others and which leaves him at least as well off as he would have been without that decision. Suppose we start from a very egalitarian distribution and let income inequality increase. Some will get more and be happy. Others will get less, which provides them with a legitimate objection to that policy... unless we compensate them for their loss and thus invalidate their objections. If the stimulating effect of that inequality increases total income sufficiently to leave a meaningful surplus after that compensation, then the resulting distribution will both generate a higher total utility and leave no-one with a legitimate objection. The richer who have to share their surplus are also better off because unless they compensate the losers, a democratic state could not have allowed that increase of

inequality. As long as a policy allowing for an increase of income inequality generates sufficient surplus to leave everybody at least as well off as he would have been without that policy and some better off, such a policy is not only acceptable but even mandated by justice. (Remember that we have stipulated that the other principles of justice are respected, notably that the required redistribution does not impinge on entitlements.)

Economics tells us that as income differences increase, the additional wealth generated by new increases will become progressively smaller. The argument goes as follows. The preference for income instead of work, leisure and consumption varies between individuals. Those with the highest preference for income will be the first to react to a small increase in income inequality. Further increases of the supply of specific types of factors of production will require progressively higher money incentives, which is equivalent to stating that a given increase in income difference will generate an ever smaller increase in productivity. At some point an increase of inequality will leave no meaningful surplus after compensation, especially if we take into account the negative external effects. We can never justify a policy which lets income differences increase beyond that point, for it will then be impossible to ensure that everyone is at least as well off as before. The income distribution at which an increase in inequality will not - after compensation - generate any meaningful surplus will be called the (Pareto-) optimal distribution; beyond that point total utility cannot be increased by any change in income distribution.

No individual can have a legitimate objection to an economic system and the resulting net income distribution if his income after tax or subsidy is equal or higher than he would have obtained in any other system which is compatible with democracy (compatible with democracy meaning that nobody can have a legitimate objection to it). As anyone must accord the same right of objecting to all other members, the only system to which nobody can object is one where - after the required compensatory redistribution - everybody is at least as well off as in any other system. Only the above optimal income distribution meets the condition that it be not-unjust. For that reason it is also the democratic distribution.

Unfortunately, the optimal distribution is totally unknown. Given the complexity of the relations involved, it seems unlikely that it will ever be determined with the minimum degree of both precision and reliability required to have it serve as a basis for policy. First, we lack relevant and measurable data. More important, the basis of the optimal distribution (the relation between inequality of income and productivity) will change over time not only because of technological developments but also because that relation contains a substantial socio-psychological component which is dynamic, because it is determined in part by the most recent experience. That component is the perception of the expected utility to be derived from extra income in relation to the perceived disutility of making the necessary sacrifices, plus some unstable factors such as the social status of various alternatives for obtaining income.

Yet any economic policy will influence income distribution, will involve justice. Given our inability to define the democratic distribution in any other than a purely abstract way, we have to fall back on purely procedural justice. We must design a procedure which will lead us in the direction of the just distribution and give nobody cause for a legitimate complaint.

The above example uses as point of departure a distribution which is far more equal than the optimal one; it not only is hypothetical, it is unrealistic. The prevailing historical situation is that income differences were higher than required by the optimal distribution. Instead of justifying an increase in income difference, it must justify a procedure for decreasing it, for instance through a progressive income tax. It must convince the less well off that they can have no justification for claiming more redistribution, and those whose income increase is taxed that it does not impinge on their entitlements. That procedure, a moderately progressive income tax, exists in all developed and democratic countries. The bone of contention is: how progressive should it be?

While there is no precise answer to that question, there are two absolute limits:

it should never impinge on legitimate entitlements

the equalisation should never ‘overshoot’ the optimal distribution. Redressing an excess of equalisation can be done only by reducing those incomes which already are at the lower end of the distribution. In a democracy that puts a heavy strain on the social fabric and on the legitimacy of the political process. On the other hand - and for reasons explained further on - it is easy to legitimate the moderately progressive tax which is mandated in the situation of higher than optimal inequality.

The development of total wealth is not a reliable indicator of the actual position in regard to the optimum. For there are other factors besides income distribution which generate increases in wealth such as an autonomous increase of population and thus supply of labour, discoveries of as yet unknown natural resources and what economists call ‘technical progress’ which is also partly autonomous: scientific discoveries follow an agenda of their own. Signs of over-equalisation might be found in the behaviour of people, but then it is too late. An inflation-adjusted moderately progressive income tax with a maximum marginal rate well below 50% will insure that we will not overshoot the optimal distribution.

Any specific income-equalisation policy needs to convince two groups that they have no legitimate complaint:

-	the poorer that they have no claim to further equalisation
-	the richer that the equalisation does not impinge on their legitimate entitlements and that the equalisation is necessary for society by foreclosing claims by the poorer and thus legitimises their higher incomes.

I will assume a growing economy, for two reasons. In a recession there are far more pressing problems than income distribution, and partly for the same reason the problem is too complex for what is just an illustration.

First, the lower incomes. In a growing economy, a modestly progressive tax will suffice to ensure that they always obtain an increase in income and therefore cannot complain that something is taken away from them. Claiming more equalisation puts on their shoulders the proof that they are entitled to such an additional income, which must be presented with sufficient certainty to warrant taking away not-unjustly acquired income from the richer. Possible justifications could be:

-	they would be better off with more equalisation; that is - as said - beyond proof
-	a further tax increase on higher incomes is mandated by other functions besides redistribution. Such income is either attributable to common goods or is due to monopoly profits;

both defy quantification and fall into the grey area. As long as their income increases, and certainly if it does so at least in sync with national income, lower incomes have no cause for legitimate complaints.

What about the higher incomes? I agree with Nozick that mpinging on a legitimate entitlement for the sake of redistribution can be justified only in one case: to finance protection which in my view must include the guarantee a subsistence income. The necessity to impinge on entitlements for that purpose will however only arise in very poor countries. What about taxes for other functions and further redistribution? What - asks Nozick - what can we offer those whose incomes have been taxed for that purpose? Why should they accept as just such a confiscation of part of their income?

We can offer them as compensation the lawful title and the protection that goes with it on income to which they are not entitled. As already emphasised, in a developed market-economy substantial income is due to monopoly profits or attributable to the contribution of common resources, especially of culture, to which no individual holds any legitimate claim, and whose distribution does not impinge on entitlements. It may be practically impossible to identify and measure on an individual basis, but its existence cannot be denied. If the redistribution through a moderately progressive tax confiscates only income which falls into that grey area, it cannot impinge on any entitlements. If we can make plausible that we do not impinge on entitlements because what we thus redistribute is far less than the income attributable to these causes, we have achieved a status which economics alone could never give it: it has become the best approximation within our reach of a ‘just’ distribution. It gives us a democratic answer to the question Nozick put to those who like Rawls support redistribution.

The existence of a grey area offers the opportunity to arrive at a negotiated and therefore not-unjust settlement of the problem of income distribution. We can offer the lower incomes extra income which they would not have acquired on their own economic power nor through a more egalitarian society, and we can provide higher incomes with an entitlement which they could not have been able to justify on other grounds (like original acquisition or legitimate transfers). That entitlement not only provides protection against egalitarian claims but also gives them the status of ‘worthy contributor to the wealth of the nation’ instead of ‘robber of the poor’.

This optimal income distribution:

-	reduces, after redistribution, income differences which are not functional
-	compensates those at the lower end of the income scale for the loss of income which they could have expected from a more egalitarian distribution
-	is justifiable vis à vis the higher incomes
-	guarantees a subsistence income for all.

4b.9) A Democratic Income Policy.

In the previous chapters we have deduced that in a democracy a just income distribution cannot be defined a priori. It follows from a democratic, just, income policy featuring:

1)	A primary income obtained in a well-organised market economy: everybody can participate, no preventable monopoly profits, identifiable proceeds from collective goods are reserved for the community.
2)	A subsistence income for all those who do not obtain it in such an economy.
3)	Skimming off income obtained through imperfections of the market: income attributable to the use of collective goods or to monopoly profits which could not be prevented and which we are capable of identifying. To the extent that we cannot identify them on an individual basis, the resulting injustice is mitigated by a tax on profits which does not impinge on incomes to which individuals are entitled.
4)	Use the net receipts from 3) to finance state functions (subsistence income, protection, education, access to and promotion of common culture, the right to participate, ensuring that lower incomes profit from an increase in total income etc.). If it is insufficient, tax the remaining income of individuals in a way that leaves unchanged the relative distribution of utility resulting from 1), 2) and 3), thus spreading the sacrifice equitably over all citizens. Because the bulk of the income due to monopoly profits and the use of common goods cannot be positively identified, there is no justification to tax them other than to fulfil state functions. Therefore no further tax is justifiable except temporarily as a consequence of fluctuations in total income, primarily business cycles, and should be reserved for dampening them.
5)	The above redistribution resulting from requirements of justice will result in a substantial equalisation of the income distribution. That equalisation is limited by the respect of entitlements and by the conditions of the optimal, not-unjust distribution presented in the previous paragraph. If this income policy failed to generate the means to finance all state functions, we would have to pare down these functions. Only protection of society and individuals, including provision of a subsistence income for all, can justify the taxation of legitimate entitlements. Given the enormous part of income taxable on the basis of considerations 3) we can ignore that eventuality, at least in a contemporary western democracy.
7)	The resulting income redistribution respects our boundary conditions (respect of entitlements and providing a subsistence income) and it maximises as far as possible everybody's utility. If achieved, it would be the only distribution to which nobody could have a legitimate objection. It can, and therefore must, serve as a conceptual objective in the discussions about income policy in a democracy.

That will remain its major role, for it is beyond any reasonably close approximation. Contrary to what for instance Tinbergen suggests, the obstacles are not just technical problems which we can expect to solve with the development of science and better registration techniques coupled to ever more powerful computers. As previously explained, the very nature of the object of our concerns - a society of free men - is incompatible with a reasonably accurate determination and control. The only magnitude which we can estimate with an acceptable degree of precision is the subsistence income.

The above provides us however with the concept of the democratic distribution. It enables us to define and make public the conditions for a just income distribution. These will provide the principles and consequent standards against which to evaluate various actual policy proposals, and help us to choose amongst them. If the task of normative justice is to ensure coexistence and cooperation, then the (justifiable and justified) perception of the citizens that the current income distribution is not unjust - because it is as just as we can make it - is more important than the actual shape of that distribution.

If we acknowledge no ultimate authority above the individual, democratic justice is mainly a procedure aimed at bringing under a common denominator - through democratic argumentation - the actual sense of justice of the individual members who subscribe to the common objective of forming a democratic society. If the magnitudes involved in the definition of a just income-distribution policy cannot be defined, the solution lies not in deceiving citizens, but in admitting our ignorance and devising a decision procedure or an economic process leading to an income distribution against which nobody can establish a legitimate complaint.

CONCLUSION. The practical problems in ensuring a just income distribution translate into an incomes-policy that attempts to:

Create a well-run market

Institute a tax policy such that we can without resorting to deception convince:

the lower incomes that they are better off than they would have been with more equalisation

the higher incomes that:

•	their entitlements are respected
•	they retain income to which they had no positive title, and that legitimation of this income is an acceptable compensation for the income taxed away for the sake of redistribution.

Generate sufficient revenues to finance state functions.

4b.9.1) Some considerations about taxes. Economics tells us that the stimulative and allocative function of income depends on the perceived utility of the last dollar gained, on the marginal income. The tax on this last dollar, the marginal tax rate, reduces this utility. What remains of that last dollar after taxation must provide a sufficient incentive to bring us closer to the optimal, not-unjust distribution. A moderately progressive and inflation-adjusted income tax seems to be a practical and safe method for meeting that condition and thus of approximating the democratic income distribution. There is as yet no scientific and reasonably conclusive evidence as to what such a marginal rate would be. But long familiarity with that problem as seen from both ends of the income distribution gives me a gut feeling that this rate must lie well below 50%.

Besides depressing productivity, high marginal tax rates have another drawback: they stimulate tax evasion beacuse people can earn more by investing in tax evasion than by increasing their productivity. In addition, high marginal tax rates increase the opportunity to do so, for the higher the rate, the more provisions and exceptions it will have to contain, for example to prevent impinging on just entitlements. High marginal taxes will also increase the risk of confiscating income to which the holder feels justly entitled, thus providing a moral justification for evading

them. Stories of successful tax evasion undermine the legitimacy of the tax system both in the eyes of lower incomes and of those higher incomes which have not yet done so. In the end, that will affect the perceived legitimacy of the whole society.

The very high marginal tax rates in some western democracies found their origin in the sacrifices everyone had to make during the war, and in its aftermath to reconstruct their countries. At the time they were accepted as legitimate by most of the political and social spectrum. As postwar reconstruction gained momentum and the pre-war Standard of living was recovered, these newly acquired means of the state were in many countries invested in the major achievement of post-war democracies, the welfare state. In the spirit of solidarity generated by the common experience of the war, the welfare state sometimes overshot its marks, and the surplus of taxation provided an opportunity for pork-barrel politics. These inevitable imperfections however are not the cause of today's lack of perceived legitimacy of taxes.

In the sixties and seventies, the justification for taxes shifted from the financing of commonly acknowledged state functions to the socialistic ideals of the ‘new left’ in the USA and Marxistoriented unions and Labour parties in other countries, notably mine, under the influence of a Marxist, anti-business, bashing-the-rich, profits-are-theft, mentality of a self-proclaimed intelligentsia. In countries like Holland and the UK, marginal tax rates in the name of income equalization of 70% and 80% far exceeded what can be justified in the name of a generally accepted concept of justice. They have been reduced in recent years, but at the turning of the century are still too high and the damage is done.

Bereft of their connotation of just contribution to the common cause, taxes have lost their perceived legitimacy and thus forfeited the support of social control in enforcing them. Tax evasion has always existed, even during the war and in the first post-war years. But at that time, the tricks, even if legal, were shared - if at all - only with close relatives and friends. Today a successful scheme is an attention-getter at any party of business men and confers on its exponent an aura of fighter for a just cause. As ever more people publicly get away with evading taxes, those who are less successful rightly question the legitimacy of a policy which condones or fails to curb such tax evasion, undermining the legitimacy of the government. Socialism has gone out of fashion. Labour has recanted its anti-business stand and recognized that it has probably overshot the equalisation required by the optimal income distribution and thus short-changed its own constituency. But redressing such errors is infinitely more difficult than making them because it is impossible to implement the necessary corrections in an equitable way in today's political and economic conditions.

Current attempts to undo the damage exhibit shortcomings which mirror those of the left: there now is an exaggerated emphasis on the individual's interests and a neglect of his social aspects, bequeathing the status of religion to the values of a free market. On top of that, the ‘globalisation’ resulting from the free flow of capital limits the ability of national govemments to take the steps required for preserving one of the greatest achievements of this century: social security. Justifying why we have to reduce minimum wages and unemployment benefits while top executives grant themselves tens of millions in salaries and hundred millions of severance pay is just not feasible.

Only a balanced policy doing justice to both aspects of man as an individual and social being can help us avoid the next threat to democracy looming on our doorstep: a large proletariat of citizens banned from the participation and benefits of our economy who by that very fact have neither the incentive nor the moral obligation to support it and to abide by its laws.

4b.9.2) An example of an income tax structure. What would a tax structure based on the above considerations look like? First, the state must ensure a subsistence income for those who cannot fend for themselves. Whatever we may call it, it will take the form of an income subsidy, a negative income tax. All income subsidies share one problem: if the primary income of the beneficiary increases, the subsidy must decrease, for the subsidy is meant only to obviate a shortfall of income below some predefined level. If all the extra income which the beneficiary earns is deducted from the subsidy, the net result will be a marginal tax rate of 100%, reducing to zero the incentive to make any sacrifice to gain income. We must therefore leave the beneficiary a significant portion of the extra income earned and withdraw the subsidy only gradually. The income at which the income subsidy, which takes the form of a negative tax, becomes zero must perforce be the tax-free base-income, for it makes no sense to tax a subsidy. The larger the difference between the tax-free income and the subsistence income, the more gradual the marginal tax on income above subsistence level can be. Within that interval we subsidise to some extent the income which lies below that tax-free base but above the subsistence income. That is not a bad thing, considering that in this scheme the subsistence income is meant to be exactly that; it will leave the beneficiary substantially below the minimum income required to allow a standard of living compatible with participation in a modern western economy; that minimum income should form the tax-free base. For such a bare subsistence to be acceptable, everybody must have the opportunity to insure himself against indigence which is not attributable to him, so that he cannot blame society for being dependent on that sub-minimal income. We will revert to that subject when dealing with social security and the right to participate.

Let us investigate how such a negative-positive income tax system would look like on basis of the previous considerations. As a tax is a reduction in income; a subsidy is equal to a negative tax, as (-) × (-) = +. A positive tax is what most citizens understand their tax to be: something negative! Amongst the various alternatives for a progressive tax rate, we must - as stated - select one which achieves such a progression through a tax-free base which is substantially higher than the subsistence income.

As an example, all in 1980 dollars, let us put:

-	the subsistence income at $ 5000
-	the minimum income, the tax-free basis, at $ 8000
-	the subsidy, (the negative tax rate on the amount by which the actual income is below $ 8000.-) at 62.5%
-	the normal, positive tax rate on income above $ 8000 at 40% (to my mind an absolute maximum)

The negative tax rate of 62,5% follows from the requirement that at an income of zero it amounts to $ 5000.- (= 62,5% of $ 8000.-) and that at $ 8000.- it will be zero. Such a tax structure would result in the following income redistribution. Net income is primary (gross) income less tax:

primary income	(negative) tax	net income

0	+5 000	=5 000
1 000	+4 375	=5 375
2 000	+3 750	=5 750
3 000	+3 125	=6 125
4 000	+2 500	=6 500
5 000	+1 875	=6 875
6 000	+1 250	=7 250
7 000	+625	=7 625
8 000	0	=8000

primary income	(positive) tax	net income	average tax %

9 000	−400	=8 600	4.4 %
10 000	−800	=9 200	8.0 %
12 000	−1 600	=10 400	13.3 %
14 000	−2 400	=11 600	17.1 %
16 000	−3 200	=12 800	20.0 %
18 000	−4 000	=14 000	22.2 %
20 000	−4 800	=15 200	24.0 %
25 000	−6 800	=18 200	27.2 %
30 000	−8 800	=21 200	29.3 %
40 000	−12 800	=27 200	32.0 %
60 000	−20 800	=39 200	34.7 %
100 000	−36 800	=63 200	36.8 %

4b.9.3) Concluding remarks. Remember that this is just a fictive example which ignores the many factors we have to take into account when designing the actual tax system. But some generally valid conclusions can be drawn.

THE TAX SYSTEM. The usual form of income distribution is: many people in the lower income classes and few in the higher. Increasing the tax-free base results in a substantial reduction of tax income for the state. The marginal negative tax rate on income below the minimum income increases if the difference between minimum and subsistence income decreases; in our example it is 62,5%. It is justifiable because it does not tax earned income; but it leaves the recipient of the negative tax with only 37,5 cents for every dollar he earns. That exposes the weakness of such subsidies: they provide little stimulation to increase taxable income and they incite abuse. We will revert to that consequence when dealing with social security. A lower rate coupled with a correspondingly higher tax-free base would provide more incentive to supplement the subsistence income by legal means. Because it reduces the tax base, it would mean a substantial increase of the (marginal) positive tax rates to finance state functions, thus causing the previously mentioned problems of legitimacy and implementation of the positive taxation. A high tax-free base and a low marginal income tax can be achieved only if the total level of taxation of income is not too high. That leads to the requirement to finance - as far as we can without coming into conflict with justice - all functions of the state by exacting their cost from those who actually profit from them, (applying what in Holland we call the ‘profijt-beginsel’). It also endorses the libertarian principle that the state should finance out of taxes only those functions which cannot adequately be performed by the private sector and are qualified as essential in a democratic decision procedure.

It also supports the decision to finance part of the state functions through a sales tax. The argument that such a tax is not progressive is correct but immaterial as long as the progression of the whole tax system is not reduced. It might indeed be possible to maintain or even increase actual progression that way. For through the sales tax we can reduce the income tax. That would justify the elimination of many provisions in the tax system whose benefits mainly go to higher incomes, especially in business. And it would reduce the incentive to base the location of wealth on tax considerations.

THE PERCEPTION OF LEGITIMACY. The major difference between Rawls' theory and mine lies in the argumentation. Rawls bases his theory on what reasonable men should consider as just. I base it on what people who have chosen for democracy do consider to be just because it follows from their choice. For a society based on justice, it is essential that the arguments for a given income policy are clear and are perceived as following from democracy.

Whatever his own views on justice, a citizen will have to accept an income policy resulting from democratic decision-making as long as he cannot show it to be unjust by convincingly establishing that at least one of the features of such a policy enumerated in 4b.9, p. 200 has been violated in a way which can be prevented without violating another one.

As stated, the income distribution resulting from an adequate market policy plus a taxation similar to the one in our example cannot be labelled as just. But as we cannot define any such distribution, that does not imply that it ipso facto merits the qualification of unjust. Any specific income policy will then be a provisory approximation of our basic conditions for a just, i.e. not-unjust, income distribution. It will be based on whatever consensus can be achieved about the relevant facts, and be established in the continuous negotiating process characteristic of a democracy. The best we can do is to ensure that the decision process leading to the income distribution is democratic and perceived to be so.

The acceptance of any income policy as not-unjust then depends not only on that policy itself but also requires an effective decision-making process which is propitious to achieving consensus wherever possible, especially about the de facto. Except for the subsistence income, none of the above causes for objection can be substantiated with any confidence unless the violation of the condition is flagrant, which it hardly ever is in modern western democracies. However, it is often possible and therefore mandatory to establish ranges within which they must lie and to publicly brand certain claims and statements to be untrue, undemocratic and demagogic (as argued in the conclusion of this book, that task is not yet adequately fulfilled). It also is possible to expose abuses of taxation by politicians who use them for other purposes besides financing state function. That leaves enough room for designing an income policy which - while not being to the liking of anybody - will at least be accepted as being free from glaring injustices and as being the most democratic income distribution and policy attainable under the prevailing circumstances.

Today's political decision-making process achieves exactly the opposite: it provides citizens with arguments to consider any income policy as illegitimate. It builds division, not consensus.

A first cause has already been dealt with: principles of justice regarding income policy which do not satisfy the democratic principle. As a consequence, any policy is considered unjust by a substantial part of the population. Another cause is a tax system which has become totally incomprehensible to all but the most specialised of specialists, and I doubt that even these really have an overview of all its implications and effects. A very first rule for a democratic tax policy is that the only considerations which should determine its design are:

-	generating the required financing of state functions
-	the income distribution objectives presented in this part.

Given the reluctance of politicians to make clear choices and to resist the temptation to finance pet projects out of anonymous tax money, thus diffusing its costs over the population, that will require tough measures, maybe even including that rule in the constitution.

4b.10) Capital and Inheritance.

4B.10.1) Capital. The possession of capital has a major impact on the ability to obtain income. We cannot realistically discuss the justice of income distribution without dealing with the distribution of capital.

In terms of income policy, capital raises two questions of principle:

-	should society allow individuals to have full authority over capital and capital goods which they have acquired by legitimate means?
-	if yes, does that apply to all capital goods and all normally legitimate means for acquiring them, specifically inheritance?

4b.10.1) Capital goods. Contrary to the position taken by most libertarians, we cannot deduce from contract theory whether it is justified that private individuals have unlimited authority over all capital goods which they might acquire by legal means. Capital goods originate as income which is used for productive instead of consumptive purposes; the entitlement to such capital goods is subject to the same considerations as income. An individual is unconditionally entitled to his own productive capability, inborn or learned, and to capital goods which owe their existence totally to that individual. As soon as the acquisition of capital goods involves social activity, especially the use of public collective goods, the justification of such acquisition and its subsequent use is open to the same kind of discussion as income.

In the case of capital, there are additional considerations. The possession and free use of capital goods often gives its holders a certain power over those who depend for their purveyance on labour whose productivity is dependent on complementary capital goods usually in the possession of a business organisation. Wage earners are then perfectly justified if they vote for legislation regulating the possession of capital goods and the way they are used. Actual or potential possessors of capital goods are equally justified in opposing such legislation.

The specific determination of exactly where we should put the limits of unbridled capitalism and to what extent we can do so without intruding on legitimate entitlements cannot be deduced from our democratic principle and must be settled in a democratic decision-making procedure.

It must also take into consideration the concrete situation of the society concerned. For besides matters of justice, there are many other relevant factors such as the current state of technology, international economic permeability and financial organisation. For instance one might have strong doubts as to the legitimacy of junk bonds as a means for acquiring companies; but until junk bonds became an accepted means of financing, that problem simply did not exist, and thus had not been provided for in legislation.

The limit of legitimacy of the accumulation of capital is clearly overstepped whenever it perverts the democratic process, for instance if that accumulation leads to a political power far in excess of what these owners of capital could claim on the basis of their number. That is not a problem exclusive to capitalist societies: excessive regulative power of bureaucrats can lead to exactly the same corruption of democracy, notably where fear of capitalist abuses has lead to concentration of capital in a state bureaucracy.

The purpose of this little digression is to illustrate that choosing for the democratic principle does not imply the choice for a specific form of ownership of capital. Economic progress is achieved by building a productive apparatus. That requires resources which could have been allocated to the production of consumer goods. If they have chosen for the market as a regulative principle for the allocation of productive factors, this means that - to produce capital goods - people must of their own free will decide to invest, and to do so they must save.

People will save even without any compensation in order to provide for later consumption, for their earning capacity is not synchronized with their consumptive requirements. Deferring consumption creates the risk of losing the purchasing power of savings through inflation or theft, so they might even be prepared to pay for ‘safe’ keeping. Investing in productive resources generates the possibility of obtaining a compensation for delaying consumption instead of having to pay for safe keeping. Demand for capital is generated by the returns which can be obtained by investing it in increased productivity. That demand creates a market for savings and the price is (inflation-corrected) interest. That interest fluctuates with the relation of demand to supply of investment capital.

Capital becomes productive only if invested in concrete production goods. That is risky, for once produced, such goods cannot be ‘unproduced’. If the expected return does not materialise, the capital invested in those goods will generate no return and might even be partially or totally lost. Even if some people prefer to invest in the safer bonds, somebody, namely the stockholder, must in the end invest in capital goods if interest is to be paid at all; he pays for and thus becomes the owner of these capital goods, he assumes the risk involved and he expects to be rewarded in the form of dividends and capital gains.

From the point of view of justice, that is all unproblematic. But ownership of capital goods has more consequences than just the opportunity of earning compensation for the risk of loss of the principal. It confers upon the stock holder (or the executive to whom he has delegated it) the authority over the capital goods (firms) which he owns.

That authority is the inevitable corollary of the fact that he will lose all his capital if it is not well used: taking risks is tied to taking control. If the stockholder were the only one at risk, there would be no problem of justice. But the people he employs also incur a risk, namely of becoming unemployed. In principle, giving full authority over the firm to the purveyor of the capital will be justified only if the employees can shield themselves from his errors by some form of unemployment insurance. The same decision-making process in which society has chosen for private ownership of capital goods must deal with the protection of employees against mismanagement and the vagaries of capitalistic production. An obligation of society which usually is overlooked by the eulogies of capitalism.

4b.10.2) Inheritance. That is one of the most intractable problems in a capitalist democracy. On one hand, the freedom which a democracy must guarantee entails that if we have legitimately amassed some wealth, we should be free to pass on that wealth to whomever we choose. On the other hand, the fact that one citizen starts life with a substantial amount of capital gives him a big head start over others who are not so fortunate. Contrary to natural assets such as intelligence or beauty, that head start is in part the result of social decision-making, namely the choice for an economy which permits such an accumulation of wealth during the lifetime of the parent, and then protects his right to leave it to his offspring or other beneficiaries of his choice.

This process can and does lead to industrial dynasties. An often heard argument against such dynasties is that the heirs may not have the required management capability. Sometime they deplete the financial reserves of a company for their private pleasure. Having had personal experience with such a company, and having followed the history of both family and publicly owned enterprises, I do not accord this argument much weight. The above risks of family owned firms find their counterpart in the ossification and bureaucratic squabbles which so often beset publicly managed companies; frequent dismissals - with a golden handshake - testify to the fallibility of the selection process in public companies. To my knowledge, no conclusive comparative study of the two types of companies has ever been made. My own impression is that the advantages and disadvantages, if seen over a longer period, will not justify any decisive and general preference for either of these forms of ownership and management of a company.

A far more serious objection to industrial dynasties is that they create a class of people having more power than others. Once a company has obtained critical mass, it achieves a special position in its ability to attract capital and take over other companies. It can become a factor which is taken into account in social decision-making by public authorities and may form a power base from which its leaders can exert a political and economic influence incompatible with democracy. If such power has been acquired by a person in the course of his life, such power - however undesirable - is a by-product of the freedom which a democracy provides its members to develop according to the fullness of their capabilities. Inheritance institutionalises such concentration of power, and the resulting allocation of capital is to a large extent unrelated to any personal contribution. In short, unlimited inheritance can thwart the basic conditions not only for democracy, but also for the competitive structure of the economy.

As long as it is not to the detriment of others, the entitlement of free use of legitimately acquired property is a basic right following from pure contract theory, and bestowing that

property on another citizen is such a legitimate use. Denying such a right will not only be perceived as unjust, it will also remove any incentive for a middle-aged present owner to use his resources productively. A market economy allowing private possession of capital goods can hardly function if that possessor knows that upon his demise all of his wealth will be confiscated by the state. That will certainly result in full-scale flight of capital. I will leave to the imagination of the reader all the means which possessors of wealth can and will devise to effectively circumvent such legislation which in their eyes is fundamentally undemocratic and unjust. The inevitable success of their efforts will undermine the legitimacy of the state in the eyes of other, less fortunate citizens.

Entitlement to inheritance versus an effective guarantee of subjective equality, coherence of society versus a competitive economy, these are real dilemmas in a modern democracy. Choosing for either alternative will provide one group of society with a legitimate grievance. To be democratic, any law about inheritance must take account of both aspects, and therefore will require legalisation of inheritance alleviating its most aggravating aspects while being justifiable to the testator even if he does not like it.

Its fundamental axiom will be that there is no unequivocal and incontestable solution to that problem. We must navigate between respect of incontestable entitlements on one hand and on the other hand avoid blatant infringement of a basic condition for the functioning of the democratic principle, equality of opportunity, as far as that this is within the power of society. Through democratic decision-making we have to search for a modus operandi to which nobody can have a legitimate objection. The whole argumentation we have developed for a just income distribution can be applied to the subject of capital and inheritance. Both are aspects of the same fundamental entity, income, and should be treated simultaneously.

In practice, just as with the income distribution, there will be a large grey area to provide us with ample room for legislation, which - if not perfect - can be accepted as just in the sense of giving nobody a legitimate cause for objection. It will have to be a negotiated compromise ensuring the have-nots their share in a functioning economy and the haves the gain of a legitimate and generally acknowledged title to at least part of the inheritance in a healthy and relatively harmonious society.

Such legislation will probably consist of a progressive inheritance tax. It would start at a level which is low enough to prevent that privately owned firms too small for access to the capital market get into difficulties. And it might ensure the continuity of publicly owned firms whose capital has become subject to a substantial inheritance tax by allowing for payment of inheritance tax with voting stock. The society as a whole will then also become a capitalist, with the state as stockholders' representative, a truly mixed economy (which some may consider a mixed blessing). The really democratic solution to the inheritance problems generated by the ownership of capital cannot be deduced from any a priori principles but must emerge from a well functioning democratic decision-making process.

4b.11) Social Security.

Social security has an acknowledged effect on the income distribution. In many cases such an effect has been a major objective in its design. In the absence of a clear definition of democracy and of the place of social security in it, it has become a playground for politics. Its foremost characteristic is its amorphousness: it is everything to everybody, abused by fraud and at the mercy of demagogues, pork-barrel politics and the prevailing fashion in sociology and economics.

The purpose of this chapter is to clarify the issues and to show the kind of argumentation which should direct the design of social security in a democracy. Any concrete proposal in this chapter is just an illustration of such argumentation. Social security here is loosely defined as income supplements provided (or guaranteed) by the state to redress shortfalls of income.

In a democracy, the task of the state - besides protection against aggression - is to provide individuals with the maximum opportunity to determine and enrich their lives while ensuring their social dimension as human beings. Specifically, the state must provide a framework for effective cooperation and ensure of a subsistence income for all. In addition, the state must fulfill those functions which are needed but which cannot be fulfilled by private persons. To the extent that it does not thereby intrude on legitimate entitlements, that it does not generate legitimate objections. One such function is to provide income insurance whenever the nature of the contingency against which the income is to be insured precludes private organisations from fulfilling that task, while there is an effective demand from the members of society. Even if supplied by the state, such insurance is a private and not a public good, for we can in all cases identify the user and in most cases can also tie the use of the service to the payment of a premium. Consequently it should in principle be regulated by voluntary agreement between the supplier and the customer, the supplier being the state and the price being its cost. But there may be good reasons for making some of it mandatory. We will revert to it when dealing with the way it should be financed.

The slogan for promoting social security is ‘solidarity’. As currently used, it is a catch-all word endowed with the sanctity of motherhood, thus enabling a politician to avoid pertinent questions about his pet scheme. Solidarity, and social security as we know it, is a mixture of the following three elements:

1)	Charity
2)	Subsistence income
3)	The cooperation (risk spreading and sharing) of insurance

To what extent are they a legitimate task of the state? The answer will provide the basis for designing and evaluating a social security system acceptable in a democracy.

The very notion of security implies that the beneficiary of social security must be able to count on its benefits when he needs them: he must have an acknowledged claim to such benefits and that claim must be enforceable by the apparatus of justice. As social security is always a transfer of income, it is subject to the conditions for entitlement by legitimate transfer.

1) Charity per definition depends on the will and goodness of the giver and not on any legitimate claim of the receiver. It cannot be a subject of justice whose main characteristic is that its judgements should be enforceable. It is ‘social’, it can help to alleviate the plight of the poorest segments of society, but it cannot take the place of the legislation required for generating the entitlement implicit in ‘security’.

2) The guarantee of a subsistence income is an acknowledged minimum objective of social security. Only the justification for it is contested. Such justification often refers to ethical standards or some a priori shape of the income distribution which ipso facto are subjective and thus cannot in a democracy oblige those who do not subscribe to them. Pure contract theory provides all members of society with an entitlement to a subsistence income; that claim therefore is independent from any connotations with charity and from the level of total income as long as this total income is sufficient to provide a subsistence income for all members of society. Whether we call it that or not, it is a negative income tax and its costs are part of the tax system and applicable to all.

3) Insurance is one of the advantages of living in a society. It enables us to spread the burden of risks over many shoulders and thus to make bearable the financial effects of disasters. A little noticed positive side-effect of insurance is that we can, by dampening the more extreme fluctuations of income, increase the total well-being of society, as explained in 4b.8.1, p. 195 (the third effect of the distribution of income on total wealth). Having chosen for a market economy, insurance normally will be supplied by the private sector. The state should provide it only if the private sector fails. But whoever is the supplier, the purpose is spreading the risk, not shifting income from one person to another for other considerations such as income distribution. Insurance is a transaction where a claim to a benefit is obtained in exchange for a premium covering the costs of that claim. Entitlement follows from the payment of that premium.

The subsistence income has already been dealt with in the general section of democratic justice and income distribution. The remaining questions raised by social security are:

1)	When does the state have a function in providing income insurance?
2)	The financial aspects of that function.

4b.11.1) The insurance function of the state. As said, the state has a function in insurance only to the extent that the private sector does not fulfil it. The inability to calculate with any reasonable precision the probability of a loss of income is the most pertinent cause for failure of the private sector to provide insurance coverage against such a loss. Two facts of economic life are responsible for that problem:

-	inflation.
-	the fluctuations in total employment

Over a longer period of time or because of a crisis, inflation can reduce the purchasing power of nominal claims, sometimes to almost zero. Nobody can make a reasonable long term estimate of inflation. Security requires that people can provide for their old age in a way that preserves at least a major portion of the purchasing power of dollars saved. Long-term inflation-proof coverage can be obtained only in two ways:

-	invest savings in risk-free inflation-proof titles (which then must be available)
-	a ‘pay-as-you-go’ (in Dutch: ‘omslag’) system where the current premiums are determined by the current claims.

The second solution can only be provided by the state. The first requires state supervision and guarantees if it delegates that function to private pension schemes. The means may be open to discussion; the obligation of society to ensure that all have a real opportunity to provide adequately for old age is not.

Insurance against unemployment is a legitimate subject for a state function. The fluctuations in the level of total employment (business cycles) and of changes in the productive apparatus (structural changes) simply are unpredictable. Unpredictable risks cannot be borne by any private organisation and must be insured by society as a whole. In the case of unemployment, there is a further compelling reason for society to assume that function. For much of involuntary unemployment is the result of the economic policies on which society has decided in the past, especially delegating most employment to the business world. If that causes a shortfall of job opportunities, society as a whole must provide for the consequences. Insuring compensation for the resulting involuntary unemployment has to be paid for by those who are responsible for the unemployment and/or profit from it. That argumentation does not apply to frictional unemployment which occurs because, having lost one job, it may take a while to find another one even in times of full employment; such delays are fairly randomly distributed around an average which, as long as the general level of employment remains stable, will change slowly, if at all. Frictional unemployment could thus be covered by private insurance. But providing separate coverage for frictional and structural unemployment seems impractical.

Disability may also be a candidate for state insurance. At first glance it would seem that disability is statistically predictable and could be insured on the same basis as medical aid. But there is indisputable evidence, notably in my country, that disability claims are correlated to the level of unemployment, especially if its benefits compare favourably to those of unemployment (which is justifiable because a really disabled person has fewer resources to cope with his plight than an unemployed one). As a cover for dismissal, disability has an additional incentive to employers who want to get rid of some employees: it does not involve negotiations with unions.

Satisfying this preference of employer and employee is not so difficult. Psychic problems and functional problems such as an aching back are in my country acknowledged causes for disability and are difficult to disprove. So is unwillingness to find appropriate work. Did he try to make the best impression he can on a prospective employer? Is he really too ill to go back to work? How disabling is his chronic headache? Does he do his level best to get better? Can't he fulfil another job? Because of the resulting correlation of disability with unemployment, the private sector cannot provide disability insurance at a reasonable contribution, which makes it a candidate for a state function. Only if we can keep disability free of other considerations and abuses will private institutions be able to provide it at an affordable price. Such ‘cleanness’ is anyway desirable for reasons of both economics and justice.

Health insurance clearly is a private good. Yet it has aspects which argue for at least some role for the state. Health is a basic need of life and a prerequisite for participation in the common

venture of building a society. Everybody must be able to afford it, and it is reasonable to assume that the money value attached to health rises with income. An income-dependent contribution seems appropriate for insurance covering the most urgent part of health problems. Preventing monopolies while at the same time ensuring access to an adequate coverage for all has generated (proposals of) state insurance for all at income-related prices for essential medical care. England has nationalised it, but reports about its health care system are not encouraging.

One function will have to be fulfilled by the state: insuring those who as yet have no income. Take housewives. Justice would require that it should be possible to insure at least some part of their earned consumption (their income in kind) against loss through disability and ‘unemployment’, for instance through divorce. A woman having good reasons for a divorce should not be forced to remain married against her will because of financial imperatives, and not be punished if her husband did not take out any insurance. Because of the opportunity for abuse, such insurance must be limited. The purveyor of income might be obliged by law to honour the wish of the not gainfully employed partner for such insurance. All such kinds of problems can be reduced to and dealt with by the basic considerations we apply to involuntary unemployment and to disability.

4b.11.2 ) The financial aspects of the insurance function. Given the complexity of the subject, I will limit this paragraph to two general considerations.

FRAUD. Other than by gift, obtaining income by lawful means usually requires efforts and sacrifices; claiming insurance benefits does not, and social security probably is the greatest source of income by fraud in a modern welfare state. Fraud increases the cost of insurance. Both logic and available data tell us that the incidence of fraud is correlated to the percentage of lost income which is refunded by the insurance, for the higher the percentage, the lower the net extra income from a new legal job. And the higher the amount obtained without having to work for it, the more attractive free time becomes as compared to the extra income to be gained by rejoining the gainfully employed. Illegitimate claims are notoriously hard to invalidate and doing so does not make the official popular. The only practical means for keeping such fraud to an acceptable minimum is to limit the insured income to such a level that for most people working becomes an attractive alternative. That presumes the availability of an alternative (see below, ‘The right to work’, p.215). A second factor promoting fraud is the impersonal nature of the purveyor of insurance which lowers the moral threshold against outright fraud. A third factor of fraud is the lack of incentive for the purveyor of insurance to control all claims, as he can pass on to the consumer much of the cost of his claims by increasing the contribution.

For any system of social security to work, fraud must be kept under control by the authorities. To be effective, it must be backed by social control. That is a realistic option because such fraud involves other persons besides the beneficiary, namely those who pay the contributions. The effectiveness of both social and justiciary control depend on the perceived legitimacy of the system. To promote that perception of legitimacy, it is imperative that all those insured are continually reminded of the relationship between contributions and benefits paid, and thus of the cost to them of abuses by others. It is also imperative to keep both the system and the

argumentation about it free of objectives, considerations and interests which do not follow from its basic function, in short, keep it clean. In my country - and probably in many others - these conditions are not acknowledged, let alone fulfilled.

VOLUNTARY OR MANDATORY? In principle, insurance of income above subsistence level should be voluntary. But there may be compelling reasons to make it mandatory. In both cases it should never be presented as a tax, but as a good belonging to the insured because they pay its price to the extend that they can. And it should be clear to everybody that the fraud and abuse of some will increase its price for all. Obviously, the benefits should be inflation-proof. Anything above that is negotiable in a democratic procedure.

An argument often levelled against voluntary income insurance is that there may be people who through lack of long-term perspective or under the pressure of current circumstances spend all their money on consumption; yet these may be the people most in need of insurance, namely those with the lowest incomes. The appropriate social institution for coping with that problem seems to be not the state, but the unions; the state should just provide the legal means needed by the unions to fulfil their task, which would be to include mandatory insurance in labour contracts. Even if they did not individually choose for such insurance, employees would still experience it as belonging to them, just like pensions. The self-employed, by their very nature, want to assume responsibility for their future and will either pay for the insurance or accept the consequences of not doing so. Society, probably their professional organisations, only has to see to it that adequate coverage is available at a reasonable price. In my democracy, they will always have a subsistence income to fall back on, paid out of the taxes of their colleagues who are more fortunate.

4b.11.3) Is the proposed system of social security affordable? In fact, in many cases (for example in Holland) it will be cheaper than the existing system. For it adds few, if any, obligations to the systems currently available in most developed economics. The negative income tax does not really introduce a benefit which other systems do not grant. All provide welfare somewhere above subsistence level. Besides preventing anybody from dying of want, it enables us to deal adequately and legitimately with those individuals to be found in any society who do not want to participate in any social venture, and who refuse to recognise any authority even if that authority is purely functional and works in their own interest. Providing them with a subsistence income can keep them off the criminal circuit and gives us a legitimate reason for punishing them if they do not. It is also human, for people who refuse to conform to any of society's norms need not be crazy, lazy or criminals. They may be too sensitive to function in today's society, and some of them are amongst the most original and valuable individuals, bent on devoting their time to a cause for which there is as yet no market but which may be of great benefit in the future, like a pioneering work of art or science.

Limiting the negative income tax to a pure subsistence income is justifiable only as long as we can ensure that the only individuals who have to dependent on it are those who are unwilling to participate in the social venture, and provided we deal adequately - along the principles proposed above - with those who have no income for causes beyond their influence.

All additional insurance is paid out of contributions to which the insured agree either individually, or through their representatives, unions or other organisations. The costs of these contributions are kept to the unavoidable minimum by keeping all ways of financing open. No-one then can complain of their cost nor claim that their benefits are insufficient. I am convinced that the often heard complaint that a humane system of social security will necessarily impair the competitiveness of business is just a fable. Only ‘corrupted’ systems do. Unfortunately, the scope of this book precludes justification of this assertion.

4b.12) The Right to Work.

As with all living systems, the income distribution is interrelated with the way our society is organised and involves other aspects whose effects must be taken into account by our income policy. To be democratic, the income distribution proposed here must be embedded in a framework of social institutions providing for all conditions required by the democratic principle. The consensus and voluntary cooperation in the collective venture of creating a democratic society requires that everybody has the opportunity to participate in that venture to the extent that he wants and is able to. While his remuneration may depend largely on the social appreciation of his contribution, he must be allowed to make it. Involuntary unemployment is illegitimate by principle and antisocial by effect. It is the major cause of the corruption of social security.

All those who participate must obtain an income which enables them to integrate in the community, to feel part of it. In short, there must be a minimum wage which must be meaningfully higher than the subsistence income which provides a fall-back position for those who voluntarily and temporarily forego that security.

Opportunities will always vary widely between individuals. Democracy implies that society should not be the cause of additional differences. And its institutions and laws should not exacerbate those natural differences of which society is innocent. A society respecting the autonomy of its members cannot ensure total equality of opportunity and it should not generate handicaps for the better endowed by trying to eliminate variations in the aptitude to play the game. But it is possible either to ensure that all are allowed to participate to the extent of their ability or to compensate those who have been denied that opportunity because of the nature of the game chosen (a capitalistic market economy). ‘Compensate’ is to be taken literally: to be as well off without a job as with one. Such an open invitation to abuse can only be prevented by also taking ‘possible’ literally, by - through the creation of ‘social’ jobs - reduce unwanted unemployment to the incidents unavoidable in any human venture.

It is surprising that in the many discussions about unemployment I have never run into the question: to whom falls the responsibility to ensure full employment or to provide compensation? The principle of reciprocity and the consequent inseparability of authority from responsibility provides the inescapable answer: to those who have the final authority in the productive units which generate wealth in our societies. The employment opportunities result from their decisions, so they are responsible for the consequences if these fall short of full employment through no fault of those looking for a job. In our capitalistic societies the primary responsibility for

employment rests with the owners of capital who claim the right to use it according to their own discretion and who reap the fruits of their investments. Employees may be at fault if their unions press for and obtain concessions which undermine the resilience of the economy, such as an excessively high minimum wage. And the government, all of us, may have to shoulder responsibility for cyclical unemployment if we balk at accepting the discipline of an anti-cyclical economic policy by building up reserves in times of boom to finance - in a responsible way - job-creating investments and programmes for recessions or depression.

Frictional and therefore short term unemployment can be adequately dealt with through insurance and a functioning job market. The real problem is cyclical and structural deficiency in the general level of employment. Basically, there are two ways of preventing involuntary unemployment:

1)	To generate sufficient job opportunities.
2)	To make unemployment voluntary by a job auction where the state (or unemployment insurance company) buys, though an allowance, jobs from those who hold them, with the obligation to abstain from any gainful work. Conceptually, this is a solution and must be mentioned even if it might be considered a pipe dream.

To the extent that the private sector does not deal with unemployment, the public sector has to. Many countries do not even acknowledge that obligation. All those which do and are conversant with the problem will know that this is easier said than done. We will not dwell on it because our subject is the argumentation, not actual policies.

If neither solution proves to be sufficient to eliminate long term involuntary unemployment, we must fall back on the benefits of social security. But the obligation of society does not end there, for the social dimension of the human being is not fulfilled by receiving unemployment compensation. If somebody cannot be reintegrated in the economy, other means of social life must be available to him. Both the social skills and the social networks in which those skills can be practised are developed in the ‘normal’ environment which - in a capitalistic economy - are the producer-consumer relation and the other social networks in which producers/consumers participate, such as sport clubs. The time table and activities, as well as costs, of these networks are totally geared to the requirements of the gainfully employed. Unless the community creates other networks or modifies the existing ones to fit their needs, those involuntarily excluded from the production network will either wither away in seclusion or enter parasitic networks such as the criminal circuit, the drop-out/drug scene and - most of all - the black market for labour (moonlighting beneficiaries of disability or unemployment benefits). The skills and the physical and mental environment of networks for the unemployed cannot be created at a moment's notice. To be permanently available, they must be created and maintained also in times of full employment.

To some libertarians the above may sound like old-fashioned socialism. Yet it simply follows from our choice for democracy and the consequent rule that with authority comes responsibility. If business claims the right to organise production as it sees fit, it ipso facto has the responsibility for ensuring employment. If it fails, it must foot the bill for the measures which the state has to take to correct that failure. If we want the safety and comfort of a reasonably stable and integrated society, we must create and finance the conditions which are necessary to its health,

including the opportunity to participate. The fact that today we have no way of ensuring that capital fulfils its duty to society is no excuse for ignoring the problem and forgoing the effort to find solutions.

These rules apply to labour just as well. If we hark to the freedom of every citizen to choose his own job and manage his own life and business, then we must accept the responsibility and risk which go with that. Specifically, if the profession which somebody has chosen turns out to be in decline, and if he thus joins the ranks of the unemployed, he cannot claim a new job in that profession, or a job commanding his previous salary. All he can require that he be allowed to retrain for and find a job in whatever has now become the industry which generates new employment, if possible - and only to the extent possible - at the level of his talents.

4b.13) Conclusions and Remarks.

1)	In a democracy the shape of the income distribution is not a consideration of justice and cannot itself be deduced from any principle of equality. Equality does dictate some state functions and a principle of taxation: equal sacrifice of utility. The democratic pedigree of the distribution is dependent on the degree to which the state fulfils its functions.
2)	The proposed principles are simple and quite abstract: they are simple because they are abstract. All concrete suggestions are just illustrations of the kind of argumentation which follows from the principles of justice. Their apparent simplicity may be taken as a sign of naivety, but please note that at the time this was written (1980/2000) the income distribution in western democracies did in fact lie within the range limited by the above considerations. The proposals therefore seem to be quite compatible with reality.
3)	Defining the functions of the state engages the whole organisation of society and thus all disciplines of social science. It requires the interdisciplinary work, the integration mentioned in the PART SIX, 6.3: ‘The Social Responsibility of Science’, under INTEGRATION, p. 240 about academic science. This book only attempts to lay foundations for that work, not to do it. It does however present functions and principles which do not yet seem to be acknowledged, mainly because they fall into the gaps left by the compartmentalisation of science and because of the failure to adequately define the society (democracy) which social science attempts to describe.
4)	One such principle is the relation between authority and responsibility which is implicit in the discussion of the right to participate. Providing a subsistence income is another function which has not been acknowledged as a precondition for democracy, partly because it is de facto fulfilled in our western democracies. Its impact lies in our attempts to extend democracy to underdeveloped countries: unless their average per capita income lies sufficiently above the subsistence income, the state cannot fulfil this function. It is then both unjust and ineffective to try to impose on such countries our western model of democracy.

5)	The principles are not dependent on the specific nature of a community other than its wish to be democratic. In particular, they are not limited to the nation-state which is losing its power to perform some of the required functions (as emphatically argued by Guéhenno in ‘La fin de la démocratie’). They can serve just as well in creating the international decision-making bodies which will have to take over these functions.
6)	The better we are informed about income differences resulting from our decisions, the better these differences can fulfil their allocative function. If a tax system really meets its objectives and is fair, both its actual and its perceived legitimacy could profit from more openness about income data, especially about the taxes paid by individuals, than is presently practised in most European countries,.
7)	Because there is no even remotely objective way to decide that the present (or an intended) distribution - whatever its shape - is just, the political process should ensure that nobody has a legitimate cause for branding it unjust. For the same reason it is imperative that the political process does not generate the perception of injustice. The main factor in creating the perception about its justice is the argumentation engaged in presenting policies and commenting on them; that will be the subject of the next part.

voetnoot1: Some libertarians argue that begetting children is ‘natural’, and that - like the child's personal endowments - its parents are the ‘natural’ circumstances of the child for which society bears no responsibility. Providing education is then the ‘natural’ responsibility of its parents. That is incorrect. Natural endowments are those on which nobody, neither the state nor the parents, has any influence. The educational environment of the child does not qualify as such: it is determined by us, the present voting members of society. To assign total responsibility to the family for a child's education is a choice, and we are responsible for that choice and its consequences. The ubiquitous existence of laws limiting the authority of parents over the child is a recognition of the conditionality of that choice. Even if society opts for the family as basic social unit, it is not thereby absolved from responsibility for ensuring equal access to education for all children. In Holland attending school is mandatory up to a certain age, and parents who keep their children away from school will be punished. Such an obligation can be imposed on parents only if they can afford it. Mandatory education must be either free or have an income price.

voetnoot2: Because no price has to be paid for it, competition will force producers to pass on to the consumer part of the gains in quality and productivity generated by the use of common and public culture. Suppose that an individual has obtained a high income solely by his own means, without the use of any public or common factor of production. With that income he can buy cheaper and better products because common culture was applied in their production; taxing that extra utility could be a legitimate subject of taxation. Again, we have no means to determine what portion of the utility of products can be imputed to common culture.

Vorige Volgende

Part Four B) A Just Income Distribution