Wilt Chamberlain Revisited: Nozick's "Justice in Transfer" and the Problem of Market-Based Distribution

BARBARA FRIED Wilt Chamberlain Revisited: Nozick’s ”Justice in Transfer” and the Problem of Market-Based Distribution

As Kenneth Arrow has noted, the notion that “an individual is entitled to what he creates” remains the most widely held intuition about distributive justice.’ The recent revival of libertarianism has seen a number of attempts to defend the notion, and with it the programmatic conclusion that redistributive taxation by the state amounts to theft.a Wenty years after its publication, however, Robert Nozicks Anarchy, State and Utopia remains the locus classicus of contemporary libertarian arguments on behalf of a minimal (that is to say, non-redistributive) state. While other libertarians have staked out their differences with Nozick, many of their arguments have a strong kinship to his. In addition, it seems fair to say that Nozick‘s argument in Anarchy has proved so dura- ble, not because it is well-defended, but because it taps into intuitions about distributive justice that are widely shared in this society.

This comment concerns a central part of Nozick‘s argument in Anar- chy: that people have a right to the exchange value of their labor or property, as against the state that seeks to capture a portion of that value through taxation, because they have received that value in a voluntary transfer from buyers who rightly owned what they transferred (“justice in transfer”). I will suggest that Nozick‘s “justice in transfer” argument

1. And (Arrow adds) one that he has considerable difficulty in persuading introductory students “[is] not completely self-evident.” Arrow, “Some Ordinalist-Utilitarian Notes on Rawls’s Theory of Justice,” Journal of Philosophy 70, no. g (1973): 248. For a similar comment, see Elliot Abramson, “Philosophization Against Taxation: Why Nozick‘s Challenge Fails,” Arizona Law Review 23 (1981): 753,759, noting that “Nozicks ‘whoever makes something is entitled to it’ notion is even intuitively appealing only because it is simply a tauto- logical reference to culture-bound axioms of thought.”

2. I have in mind the writings over the past twenty years of Richard Epstein, Ellen Frankel Paul, Eric Mack, Tibor Machan, and Jan Narveson, among others.

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rests on a fundamental misconception about what is at stake in a market exchange. When that misconception is corrected, it will be apparent (I hope) that Nozick‘s argument proves nothing about the justice of market-based distribution. While the comment will focus on Nozick‘s version of the argument, to the considerable extent his argument reflects a more general sense that we can derive a buyer’s right to keep what she gets in a market exchange from the seller’s right to give it to her, it has wider application as well.

Under Nozick’s “historical” theory of distributive justice, spelled out in Chapter 7 of Anarchy, State and Utopia, one has a right to property if one has justly acquired it under one of three principles: by acquiring something that has never previously been owned, in accordance with Nozick‘s principle of “justice in acquisition”; by acquiring it in transfer from someone else, according to Nozick‘s principle of “justice in transfer”; or by acquiring it as rectification for past violations of either of the first two principles.3 Much ink has been spilled in the past twenty years over what Nozick means by his notoriously underspecified principle of “justice in acquisition.” Among the things left ambiguous is whether the process by which unowned things are justly acquired is a Lockean labor theory of ownership, first possession, or some other thing entirely; and if (as seems most probable) it is the first, how we get from the general Lockean observation that we in some sense “own” our own bodies and what we mix our labor with, to the particular, robust set of property rights recognized in contemporary society.4

3. Pp. 150 ff. 4. Jeffrey Paul, in his introduction to Reading Nozick, ed. Jeffrey Paul (Totowa, New

Jersey: Rowman & Littlefield, 19811, rightly suggests that Nozick is ambiguous about how we justly appropriate natural resources-whether by labor, first occupancy, possession, or declaration. Idem, at p. 18. Nozick explicitly declines to specify the “details” of the principle of acquisition, including the fundamental question whether it rests on Lockean or other premises. But in a curious (one might say coy) move he proceeds to insert the details of Locke’s principle of justice in acquisition, ostensibly as a placeholder for his own absent ones. Anarchy, p. 153. But Part I1 of Anarchy read as a whole supports the view that Locke is more than a placeholder for Nozicks views- that Nozick is a Lockean, in the broad sense of believing that we own our own labor, and by extension all things we create or improve through our labor. For the balance of this article, I proceed on the assumption that Nozick is a Lockean in this sense. But the assumption is not critical to my main argument, which (stated more broadly) is that whatever principle establishes the justice of original acquisition, the principle of justice in transfer does nothing to resolve the extent of property rights in the thing acquired, in particular the right to its market value.

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One of the extensive rights that has proved most troublesome to Lock- eans over the past two hundred years, and which Part I1 of Anarchy is largely aimed at defending, is the right to the market value of our holdings. Nozick follows a long tradition in assuming that if we justly own X (say, our natural talents) under a Lockean theory of ownership, it necessarily follows that we own what anyone will voluntarily pay us for X.5 As John Stuart Mill expressed that intuition over a century ago, in a fair paraphrase of Nozick‘s theory of justice, “Nothing is implied in property but the right of each to his (or her) own faculties, to what he can produce by them, and to whatever he can get for them in a fair market; together with his right to give this to any other person if he chooses, and the right of that other to receive and enjoy it.’’6 Throughout Part I1 of Anarchy, Nozick treats the proposition as self-evident. But as one important strand of philosophical argument has asserted over the past two centuries, the proposition is problematic at least with respect to that portion of market value that reflects surplus value (economic rents) due to scarcity conditions of one sort or another. Whatever other arguments might be made to defend our right to such surplus value, it appears hard to derive that right from Lockean principles, if(as Mill and many others have assumed) the moral appeal of a Lockean labor theory of ownership lies in its promise of “proportion between remuneration and exertion.”7

This comment does not address the problem of surplus value directly. Instead, it deals with the second half of Nozick‘s theory, the principle of “justice in transfer.” It argues that the primary, covert function that “justice in transfer” performs in Nozicks scheme is to circumvent the need to justify surplus value under a fleshed-out theory of “justice in acquisition.” It does this by offering an alternative defense for surplus value, at least when it is realized in its most common and controversial form: through market exchange. I will suggest that the use to which “justice in transfer” is put here is spurious, the result of Nozick‘s confusing two mor-

5. See, e.g., Anarchy, pp. 222-23.

6. Principles of Political Economy, (London: Longmans, Green and Co., ig29), Book 11, Chap. 2, 53 at p. 221 (emphasis added).

7. Or as Mill put it more fuUy and eloquently: “To judge of the final destination of the institution of property, we must suppose everything rectified which causes the institution to work in a manner opposed to that equitable principle, of proportion between remuneration and exertion, on which in every vindication of it that will bear the light it is assumed to be grounded.” Principles, Book 11, Chap. 1, 43 at p. 209.


ally unrelated issues: whether we own, free from any claims of society, any surplus value in our holdings; and whether we have a right to give to others what we own. When that confusion is dispelled, Nozick‘s “justice in transfer” principle is revealed to be largely a red herring. It smuggles the problem of surplus value out of the “justice in acquisition” portion of his argument, where it rightly belongs, without ever resolving it.

Nozick’s “justice in transfer”: Nozick famously summarizes his historical theory of distributive justice as follows: “[Tlo each according to‘ what he makes for himself [Nozick‘s principle of just original acquisition] . . . and what others choose to do for him and choose to give him of what they’ve been given previously (under this maxim) and haven’t yet expended or transferred.”8 In brief, Nozick argues that we justly acquire something by transfer if we acquire it in a voluntary transfer (meaning generally, without force or fraud) from someone who rightly owns it himself or herself. Nozick makes much of the fact that voluntary transfers could be motivated by a number of factors, thus making the resulting distribution of goods “unpatterned” in any traditional sense.9 But as he elsewhere acknowledges, the numerous examples he provides in fact fall into one of two classes: gratuitous transfers (inter vivos gifts and inheritance, charitable contributions, grants, etc.) and market exchanges (sales of goods and services, and returns on investment, including interest, dividends, and gambling proceeds).lO Nozick treats the two classes as identical for all purposes in his theory of justice in transfer. But, as will be suggested below, the two raise quite different justificatory problems. Nozick believes his principle of justice in transfer plays a role in his theory of distributive justice that is theoretically modest, but practically quite important. It is theoretically modest, because it purports to explain only the conditions under which one can justly transfer an entitlement from one person to another, leaving the content of the entitle-

8. Anarchy at p. 160 (emphasis added). For another version, see pp. 186-87. 9. Ibid., pp. 156-57. 10. Ibid., p. 149. Nozick treats “gambling” as something distinct from a market exchange

for which one is paid one‘s marginal product, but he is clearly wrong. The archetypical gambling experience say, playing blackjack in Las Vegas-is a market exchange in two senses. For most gamblers, the act of wagering purchases a pleasurable recreational activ- ity. For many, who believe (albeit deludedly) they will beat the odds, it is a conventional investment as well. Both aspects are present in other gambles not typically thought of as “gambling”-for example, playing the stock market-although perhaps in a different mix.

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ment to be determined by some other principle (justice in acquisition) .ll It is practically important, because, as Nozick notes, the actual distribution of holdings at any time in society is the product of many such transfers.=

But the “justice in transfer” principle performs another more important, although covert, function in Nozicks scheme: to justify people’s right to keep whatever the market will pay them for their labor or property. As noted above, Lockean theory has been plagued from the start by the difficulty of justifying a private right to that portion of market price that reflects scarcity rents, whether accruing to land or other natural resources, financial capital, market opportunities, or natural talents. In Locke’s own version of Lockean theory, the problem surfaced with respect to land. On its face, Locke’s theory of appropriation suggests that by mixing our labor with the land, we acquire in a state of nature a property right not merely to the value we added by our labor, but also to the total value of the parcel, including the scarcity value of the land itse1f.u But Locke himself undercut that conclusion with his famous proviso that we must leave “enough, and as good” for others-a requirement that, read strictly, would preclude any appropriation of scarcity value of land and other natural resources, the supply of which is constrained.l4 Many of Locke’s libertarian heirs have had their doubts as well. Indeed, no less a figure than (the early) Herbert Spencer argued that our labor gives us at most a lien against the land, equal to the added value of our labor.l5

11. Ibid., pp. 151-52. 12. Ibid., p. 151. 13. John Locke, Two Treatises of Government, Book 11, sec. 27. 14. That is, we leave “enough, and as good” for others only when what we take is not

scarce. But when it is not scarce, it has no value. So Locke’s theory, with a strict proviso, amounts to saying that we can appropriate land for ourselves out of the commons only when it would be of no value to do so because there is land in superabundance whenever we want it. Locke believes he can avoid that paradox by supposing an England with scarce land (making appropriation valuable) and a fictive America with land in superabundance (leaving “enough, and as good” for all others deprived of the opportunity to appropriate land in England). But those two conditions (scarcity in England and abundance in Amer- ica) can coexist only because, due to its locational disadvantages, land in America is not an economic substitute for land in England. Thus, a herder in late seventeenth-century Cotswolds might rightly feel that the offer to relocate him to the wilds of Massachusetts when he is dispossessed of the commons in his home town does not satisfy the true spirit of the requirement that he be given “enough, and as good.” 15. Social Statics, Chap. 9, 52, 58-10, at 13z,i41-44. For the problematic status of private


The problem of justifymg economic rents has extended beyond land to all temporarily or permanently scarce resources, including financial capital, market opportunities, and natural talents, and has dominated debates about the distributive justice of the market over the past two centuries. In the classical economic tradition, the socialist attack on the justice of the market was an attack on the economic rents that scarce capital could command from the putative generator of all value, labor- a charge the defenders of capitalism took seriously enough at the time to parry by reconceiving profit as the “wages of abstinence” (that is, as the remuneration justly due capitalists’ exertion in abstaining from current consumption of their wealth). Henry George and his followers, taking their cue from Ricardo, assumed that only one form of capital- land-was the residual claimant that would take all the surplus value after labor and capital were paid their fixed charges, an assumption that fueled the wildly popular land tax movement in England and the U.S. in the late nineteenth and early twentieth centuries. In the neoclassical tradition, the Fabian Socialists and British New Liberals generalized the Ricardian attacks on land rents to all factors of production, to conclude that any factor that was in short supply-land, labor or capital-could command a scarcity rent, a moral captured in their “law of three rents.” Finally, cutting across economic theories, political eras and political factions has been a hostility to scarcity rents that accrued to sole suppli- ers of a factor of production-that is, to monopolists.16

The difficulties of justifying private ownership of surplus value under a Lockean theory of entitlements are evident in a number of contemporary libertarian arguments for extensive private property rights. Nozick‘s

land ownership in late nineteenth and early twentieth century political theory, see Barbara Fried, Robert Hale and Progressive Legal Economics, Chap. 3 (forthcoming, Harvard Uni- versity Press). For an acknowledgment by contemporary libertarians of the difficulty of defending the right of those who own and work the land to that portion of its value, realized in the form of higher profit on produce from the land or higher resale value, that reflects the scarcity of land rather than the labor mixed in it, see Nozick, Anarchy, p. 175; Richard Epstein, “The Utilitarian Foundations of Natural Law,” Harvard Journal of Law and Public Policy 12 (1989): 713, w ~ - 3 2 ; David Miller, “Justice and Property,” Ratio 21 (June 1980): 1-14, esp. 11-14; Eric Mack, “Distributive Justice and the Tensions of Lockeanism,” Social Philosophy and Policy 1 (Autumn 1983): 132-50 As Richard Epstein notes, it is theoretically unsatisfymg and empirically unjustified to dismiss the problem as de minimis. Idem, at p. 731.

16. For a fuller development of the history of rent-based attacks on the market, see Fried, Robert Hale and Progressive Legal Economics, Chap. 4.


is no exception. Nozick acknowledges the problem when it arises in its most extreme and obvious form, classic cases of extortionate monopoly pricing.l7 But the problem of surplus value is implicated as well in a number of deep structural features of Anarchy. For example, Nozicks “weak version” of the Lockean proviso, which allows first-comers to appropriate land and other natural resources provided they leave others (later-comers) as well off as they would have been in a world without private appropriation, in effect permits first-comers to appropriate the surplus value inherent in soon-to-be scarce resources. So also, in his hypothetical account in the first part of Anurchy of how the minimal state could come into existence without violating the rights of others, Nozick permits the dominant private protective association unilaterally to put all others out of business by paying damages that leave the dispossessed indifferent between keeping their own associations in a world of multiple associations and being absorbed into the dominant one. That rule of compensation-what legal academics would call a “liabil- ity” rule of damages-in effect allows the members of the dominant association to appropriate all the surplus value inherent in being the sole protective association.18

One would logically expect Nozick to deal with the problem of scarcity rents in fleshing out his theory of “justice in acquisition,” given that it implicates two of the central issues Nozick himself recognizes must be addressed by such a theory: “the things that may come to be held [by

17. The best-known example is the passage in Anarchy in which Nozick concedes that the Lockean proviso may preclude an otherwise just Lockean appropriator of the only water hole in town from “charg[ing] what he will” for his supply. Anarchy, pp. 179,180. But Nozick‘s well-known 1969 article on “Coercion” shows the same moral impulse at work, in its treatment of the drowning person saved by the casual efforts of a passerby. Nozick tries to protect the necessitous victim from extortionate pricing by the rescuer, by creating an unconditional right to be rescued by passersby and a corresponding duty on any passerby to rescue. “Coercion,” in Sidney Morgenbesser et al., eds. Philosophy, Science and Method (New York Saint Martin’s Press, 19691, pp. 468-69 n. zg . But it seems unlikely that Nozick (the libertarian) is serious about that strong form of duty. What he is more likely after is protection against monopoly pricing, a concern that is properly addressed by a conditional duty: We are free not to save a drowning person; but if we choose to save her, we are under a duty not to charge more than a fair price for our services.

18. As Eric Mack has noted, that result is inconsistent with Nozicks strong view of property rights once in the minimal state, where he generally assumes we have the right to protect the surplus value inherent in our property rights by charging whatever the market will bear for our relinquishing those rights (a so-called “property” rule of damages). “Nozick on Unproductivity: The Unintended Consequences,” in Reading Nozick, pp. 169-190.


a particular process of just acquisition],” and “the extent of what comes to be held” by that process.lg But Nozick never does resolve it in that context. He deliberately distances himself from one of the most popular libertarian defenses of surplus value-the argument that people are entitled to what the market pays because they are entitled to the value they bestow on society (that is, their marginal product).20 He offers no alternative defense of surplus value in its place. Instead, he suggests that the dilemma is resolved by his second principle, “justice in transfer.”

Professing complete befuddlement as to why market prices (as determined by the marginal productivity of the goods or services exchanged) should be rejected as “an appropriate theory of fair or just shares,” in favor of some other measure of “just price,” Nozick states:

It is difficult to see why these issues should even arise here. People are choosing to make exchanges with other people and to transfer entitlements, with no restrictions on their freedom to trade with any other party at any mutually acceptable ratio. Why does such sequential social cooperation, linked together by people’s voluntary exchanges,

19. Anarchy, p. 150. Some might object that because Nozick appears to limit the domain of justice in acquisition to previously “unheld things,” it would be appropriate to take up under that rubric entitlement to surplus value that accrues to natural resources and ob- jects first claimed or created by the owner, but not that which accrues to previously owned property acquired by the owner through gift or exchange. But Nozick himself has asserted that the principle of acquisition specifies all “legitimate first ‘moves.”’ Anarchy, p. 151. Establishing the right to previously nonexistent economic value-whether accruing to newly owned or previously possessed things-seems clearly to be such a “first move.” More to the point, whatever rubric one proceeds under, a developed theory of entitlements would have to explain why ownership of an object for some purposes should or should not extend to ownership of the right to surplus value that accrues to that object over time. 20. Nozick attributes the argument to Hayek. Anarchy, pp. 158-59. But Hayek himself

eschews any attempt to defend as just the distribution that results from the unimpeded operation of the market. He defends it rather in part on incentive grounds, and (more importantly) as a necessary byproduct of the personal freedom of action that comes only with the spontaneous ordering of the market. The Constitution ofLiberty (Chicago: Uni- versity of Chicago Press, igsg), pp. 95-100; Law, Legislation and Liberty, vol. 2 (Chicago: University of Chicago Press, 1976) , pp. 67-78. A more apt cite (among others) would be John Bates Clark, whose The Distribution of Wealth (1899) argued unambiguously for a moral entitlement to the value of what we produce.

Nozicks position on the moral significance of marginal productivity is slippery at best, but seems to boil down to this. He invokes the theory of marginal productivity to argue (contra Rawls) that when things are jointly produced we can measure each person’s contribution for purposes of implementing the theory “to each according to what he makes”:

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raise any special problems about how things are to be distributed? Why isn’t the appropriate (a not inappropriate) set of holdings just the one which actually occurs via this process of mutually-agreed-to exchanges whereby people choose to give to others what they are entitled to give or hold?21

In a famous passage, Nozick argues that if (i) one million people who want to see Wilt Chamberlain play basketball choose to transfer 25 cents to him as the price of admission; (ii) each of those one million people justly owned the 25 cents himself to begin with; and (iii) just ownership means (among other things) that you are entitled to dispose of it in any manner you see fit (“what was it for if not to do something with?”), Chamberlain must be entitled to the $250,000 he has thus acquired- entitled, in particular, as against any government that seeks to redistrib- ute a portion of it through taxation and wealth-transfer programs.22 “By what process could such a transfer among two persons give rise to a legitimate claim of distributive justice on a portion of what was transferred, by a third party who had no claim of justice on any holding of the others before the transfer?” asks Nozick, rhetori~ally.~3

his contribution is his marginal product, as determined automatically by market prices. Anarchy, pp. 187-88. He also takes some comfort from the fact that most transfers in a market economy will be to people in accordance with their marginal product, a motive that is “reasonable and intelligible.” idem, at p. 159. (Why?) But he rejects the argument that we are entitled to what the market pays us because it reflects the value of the marginal product. See, e.g., idem, at p. 158, arguing that while distribution according to benefits to others (marginal productivity) “is a major patterned strand in a free capitalist society,” it is not the only one, nor is it “a standard that one should insist a society fit”; idem, at p. 188, where Nozick states that even if there were serious doubt whether the market pays people their marginal product, “an entitlement theorist would fmd acceptable whatever distribution resulted from the party’s voluntary exchanges.”

21. Anarchy, pp. 186-87. For another comment describing the resulting distribution of wealth in a market economy as, in effect, caused by the unilateral, voluntary decisions of buyers to pay money for the seller’s holdings, see p. 150: “The total result is the product of many individual decisions which the different individuals involved are entitled to make.”

22. Ibid., pp. 160-64. 23. Ibid., pp. 161-62. It is perhaps worth noting the structural similarities between

Nozick‘s defense of market-based distribution and Hayeks. Both avoid the need to defend the substantive fairness of distributive outcomes in a market economy, by arguing that those outcomes are justified as a necessary byproduct of an independently valuable freedom. In Nozicks case, the relevant freedom is the freedom of the buyer to give away her holdings to whomever she wishes (including the seller). In Hayek‘s case, it is the freedom of the seller of goods or services to “use his knowledge for his own purposes.” Law, Legis- lation and Liberty, vol. 2, p. 69.


The example has been subject to numerous criticisms, including the unsupported assumption that the fans’ initial right to their 25 cents each must necessarily carry with it the absolute right of transfer (proposition iii).24 One could, for example, destroy Nozick‘s argument simply by de- fining the property right ab initio as not including the right to transfer the property in such a fashion as to upset unduly some end-state egali- tarian distributive pattern-arguably the implicit position of our current gift-tax ~cherne.~5 In a similar vein, proponents of a confiscatory estate tax have long argued that property rights are bestowed for reasons that evaporate upon death of the owner. Thus, when the state declares that property held at death escheats to the state, it is not abrogating property rights; it is merely enforcing them in accordance with their initial, in- tended configuration. One would have to defend that initial configuration as a normative matter, but then again Nozick would have to defend his as well.

But the example, and the theory of entitlement by just transfer that it is meant to illustrate, has a deeper problem. It confuses two issues: whether each party has a right to the full market value of the asset she holds the moment before exchange; and if so, whether she has a right to transfer it to another person, as a gift or in exchange it for another asset of equal value. Nozick‘s example goes only to the latter point; but it is the former point that is the troubling one.

The problem may be easier to see by starting with a different example than Nozicks. Imagine that in the 1950s WC bought a parcel of vacant land in a sparsely populated county adjacent to New York City for $5,000 in cash, which cash he had saved from his earnings as a day-

24. See Thomas Nagel, “Libertarianism without Foundations,” Yale Law Journal 85 (1975): 136, reprinted in J. Paul, ed., Reading Nozick, pp. 201-202; Onora O’Neill, “Nozick’s Entitlements,” Inquiry 19 (1976): 468-81, reprinted in Reading Nozick, pp. 308-10; Cheyney Ryan, “Yours, Mine and Ours: Property Rights and Individual Liberty,” Ethics (Jan. 197): 126-41, reprinted in Reading Nozick, pp. 325-35. For the observation more generally that historical theories of justice, like end-state theories, may limit transfers by requiring that the transfers preserve any provisos attached to initial acquisition, see Lawrence Becker, “Against the Supposed Difference Between Historical and End-State Theories,” Phil- osophical Studies 41 (March 1982): 267-272. As Becker notes, Nozick’s own version in Anar- chy (see pp. 179-801 requires such “tinkering” with people’s property rights to preserve the Lockean proviso even after original just acquisition. 25. I have in mind the feature of the gift-tax scheme that exempts from gift or estate tax

the first $io,ooo given each year to each donee. The effect of the provision is to allow even the very wealthy to give away all of their wealth during their lifetime without any tax consequences, provided that they disperse it widely enough.

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laborer. Over the ensuing twenty years, economic, demographic, and other social changes spurred large numbers of people who worked in New York City to emigrate to the suburbs, driving real estate prices up 500-fold or more.26 By the early ig7os, WC’s land is worth $250,000. What are WC’s Lockean rights to the market value of the land?*7

First, assume WC continues to hold on to the land rather than sell it. Although WC has chosen not to cash out his investment, he holds an asset that at any given moment he could cash out, if he wished, for $25o,ooo. By any conventional notion of wealth, it is clear that WC is wealthier now than he was 20 years ago, by $245,000. (Suppose, for example, WC had just won the land in a contest he paid $5,000 to enter.) The hardcore libertarian Locke of MacPherson and others, updated to accommodate the division of labor (let us call him Right Locke), would say that because WC bought the house with the fruits of his labor ($5,000 in earnings), he owns it absolutely, as against any claims by the state. There are a number of things to say in defense of that position, some arising from a theory of rights and some from utilitarian considerations. But, as suggested above, the position is hardly unassailable. The Locke of the Ricardian socialists, Henry George, early (unreconstructed) Spencer and others (let us call him Left Locke) would agree with Right Locke that by virtue of his labor WC is entitled to a portion of the value of that land, but (being a strict desert theorist) would argue the portion is limited to WC’s actual cost, or sacrifice, in acquiring it ($5,000)~ plus perhaps a fair return on that cost.28 Any appreciation in value above that

26. For purposes of this argument, I am ignoring inflation. In the real world, inflation changes the relevant numbers for measuring real increases in wealth, but not the underly- ing argument.

27. In the discussion that follows, for simplicity’s sake I ignore Locke’s additional proviso that “enough, and as good” be left for others, focusing solely on what a labor theory of ownership implies about surplus value. I assume a stylized argument between a hypothetical Right Locke and Left Locke, both of whom start from the premise that labor is the moral foundation of ownership, but reach different conclusions about the scope of rights implied. Left Locke thinks labor is significant because it establishes moral desert. Why Right Locke thinks it is significant (desert, autonomy/personality, or something else) is ambiguous, as it is for the real Locke. Varying any of these assumptions might change the answer each side would give about the right to surplus value. (Adding in the proviso, for example, might change the answer Right Locke gives for surplus value of land and other natural resources, although presumably not for talents.) But, as suggested in n. 4 above, it does not change my essential argument that whatever principle of just acquisition one adopts, “justice in transfer” is irrelevant to resolving that right.

28. WC’s right under some Lockean theory of entitlement to a “fair return,” reflecting


amount is purely fortuitous so far as WC is concerned, resulting from the intersection of a naturally constrained supply of land in commuting distance from New York City, and increasing societal demand for such land. If anyone has a Lockean right to that appreciation, Left Locke would argue, it is not WC-who has already received remuneration in proportion to his exertion-but society at large, out of whose commons WC was permitted to take the land in the first place, and whose chang- ing tastes and material wealth put a financial premium on the lands scarce locational attributes. As Edmund James put the argument a century ago, asserting that “the state is the ‘silent partner’ in every business enterprise,” which may take its rightful share through taxation: “To test the relative productivity of the state and the individual, compare the fortune accumulated by Cornelius Vanderbilt in America with what he might have accumulated had he been adopted when an infant by a family of Hottentots.”*g

Society could justly exercise its right as a silent partner under the Left Locke view by taxing WC on the increase in value as it occurs. It might for a variety of administrative or other prudential reasons decline to exercise that right until such time as WC sells the property. Among those reasons are the difficulty in valuing property when it hasn’t actually changed hands in an arms’-length market exchange, and what is re- ferred to in tax circles as the “liquidity” problem-the fact that WC may have trouble coming up with cash to pay tax on the annual increase in value if he hasn’t actually sold the property for cash. In our current tax system, those concerns have led to a general “realization requirement’’-that is, a decision not to tax appreciation in value in many (although not all) financial assets until the assets are actually sold for cash or exchanged for other non-like assets. But the fact that society may choose not to tax the appreciation in value of assets as it accrues does

~ ~

the going (risk-adjusted???) interest rate, raises a host of philosophical puzzles of its own, many with a rich history in political and economic thought. I have dealt with them in detail elsewhere. See Fried, Robert Hale and Progressive Legal Economics, Chap. 4. They are hardly irrelevant to the example, as WC’s entitlement to the entire $ Z ~ O , O O O might best be defended by arguing that it represents (taking WC’s portfolio of assets as a whole) a fair return to risk. That argument, however, is beyond the scope of this paper, which requires only that we agree that a supernormal return on investment presents on its face moral difficulties for a strong (vaguely Lockean) theory of entitlement, which ought to be dealt with somewhere in a (vaguely hckean) theory of distributive justice.

zg. “The State as an Economic Factor,” in Science Economic Discussion (New York The Science Company, 18861, p. 32.


not change the fact that (under the Left Lockean view) it could do so as a matter of moral right if it wished.

Suppose instead that when the land was worth $250,000 WC had chosen to give it to his children as a gift. Nozicks theory of justice in transfer says in effect that the right to give one’s property to someone else is a lesser included right of owning it. Thus, to the extentWC justly owns the land, he may transfer his ownership to his children whenever he wishes. As suggested above, Nozick‘s conclusion that the right of unrestricted transfer is necessarily a lesser-included right of ownership, although widely shared, is not self-evident. But the relevant point for present purposes is not the conclusion, but the premise: WC may give to his children only what he owned to begin with the moment before transfer. What does he own? Right Locke would say WC owns all rights of exploi- tation in the property (including the right to obtain its full market value). Left Locke would say he owns only a portion of its value, equal to his investment in the property (plus a fair return), and that society has a claim on the rest. Society could exercise its claim by taxing WC on the increase in value as it occurs. Again, for a variety of administrative reasons, it might choose to defer taxation until WC transfers the property to his children, or even later, until the children sell the property at a gain (the actual solution under our income tax system). But again, the choice to defer is merely prudential.

Suppose now that when the land was worth $25o,ooo, WC sold it to a willing buyer, X, for $250,000 in cash. Does the government have any claim on a portion of the $250,000 in cash? Nozick‘s theory of justice in transfer says that because X voluntarily gave WC the $250,ooo, which (we will stipulate) X rightfully owned, WC must now rightfully own the $250,000 as well. But I hope it will be clear now that the transfer is irrelevant to resolving society’s right to a portion of the $250,000. When X gives WC $250,000, WC is not $250,000 richer. He is no richer at all. He has traded an asset worth $250,000 for $250,000 in cash, thereby chang- ing the form but not amount of his ~ e a l t h . 3 ~ What made him wealthier was not the $250,000 in cash from X, but the $245,000 appreciation in

30. This need not always be the case. If X values WC’s land more highly than the market and outbids what would have been the market price without X in the market (say, $ Z ~ O , O O O ) , then X’s willingness to buy does increase WC’s wealth by $io,ooo (the difference between the market value of the property before X entered the market and the market value after). But even as to that last $io,ooo in value, X’s offer to purchase at $250,000 is relevant, since it created that extra value, but the actual transfer of cash is not. (Even if WC


value over the preceding 30 years. Under the Left Locke view, society could have taxed WC on the $245,000 appreciation even if he had never cashed out or otherwise disposed of the property. It cannot be that society has fewer rights (under the Left Locke view) when WC cashes out his gain. While (as suggested in the two preceding examples) society might have chosen for a variety of administrative and other reasons to wait until WC cashes out his gain to claim a portion of that gain, it is nonethe- less the gain, and not the cash, that society claims a moral right over, and with respect to that claim X’s transfer is irrelevant. (Contrast, for example, the situation where WC buys the land for $250,000 in cash, and sells it the next day to Z for $250,000. Now the government claims nothing from WC, not because Z has voluntarily transferred the $25o,ooo to WC, but because the land never appreciated over its original cost, and hence WC gained nothing by acquiring and holding it.) Right Locke would disagree with Left Locke’s conclusion, but only because he would disagree with the premise that WC did not own the full value of the property the moment before transfer. Both would agree, however, that the exchange itself cannot enlarge whatever preexisting rights WC had in the property.

Nozick has been led astray here into thinking that X s transfer is relevant to resolving WC’s rights because he misconstrues what is at stake in the transfer. Even if one accepts the principle stated in “justice in transfer” that whatever X owns he can give to WC, X did not give the $250,000 to WC. He gave it to the economic owner of the land to which WC holds title, in order to obtain ownership himself. If, as Left Locke would maintain, WC owns only $5,000 of the value of the land (arguably plus a fair return on the investment), and holds title to the remaining $245,000 in effect as a trustee of society, he has no more right to retain the entire $250,000 than he would were the land encumbered by a private lien. (Imagine, for example, that WC had purchased the land for $250,000, using $5,000 of his own capital and a $245,000 loan from the bank secured by the land; and that WC subsequently resold the land for $250,000. Notwithstanding that WC held sole title to the land, the bank in effect coinvested in the property with him, to the tune of $245,000, and has a legal right to demand that WC turn over $245,000 of the pro-

refuses the offer, he possesses an asset now worth $250,000 on the market, and at least that much to him, or he would have sold it.)


ceeds to it. The state is, in the Left Locke view, a passive coinvestor just like the bank, retaining a lien on any appreciation in the scarcity value of the land itself.)

Thus, transfer by gift and by exchange, which Nozick casually treats as posing identical problems in entitlement theory, raise completely different pr0bIems.3~ If X owns $250,000 in cash free of any claims by the state and transfers that $250,000 to WC as a gift, the sole question is whether, as Nozick asserts, “owning” something for some purposes necessarily carries with it the right to transfer it to whomever we wish-or to put it in Nozick‘s terms, whether “persons who have a right to hold also have a right to choose that others hold in their p la~e .”3~ But if X transfers that same cash to WC in exchange for property, X’s wish to benefit WC, even if present (which of course need not be the case in a market exchange), cannot determine WC’s right to that cash. Such right depends in the first instance on whether WC owns what X gave him the cash to get-the right to the full value of the property.

How does all of this apply to Nozick‘s example of the hypothetical exchange between Chamberlain and a representative fan X? It applies exactly, once one makes the necessary translations from financial capital (WC’s land) to human capital (Chamberlain’s basketball talent). Chamberlain has taken his natural, scarce basketball talent, and added to it considerable hard work, to develop “human capital” (in economists’ lingo) in the form of superstar-level basketball skill. That human capital has a high value on the market, because society (due to its peculiar consumption tastes) places a high value on superlative basketball playing, and Chamberlain is, in effect, a monopolist supplier of basketball skills at that high level because of the natural scarcity of his talent. When X and the million other fans who share society’s peculiar consumption tastes pay Chamberlain a total of $250,000 to watch him play, Chamberlain is not wealthier in the broad sense. He has merely changed the form of his wealth, from an ability to command a gate of $250,000, to the actual gate receipts.

What are Chamberlain’s Lockean rights to that $250,0oo? A number of new wrinkles are introduced as we move from financial capital to

31. For Nozicks treatment of them as identical, see Anarchy, p. 161 (“If the people were entitled to dispose of the resources to which they were entitled. . ., didn’t this include their being entitled to give it to, or exchange it with, Wilt Chamberlain?”). 32. Ibid., p. 168.


human capital, which may lead Left Locke (along with the typical reader) to answer the question differently than she would in the land context. Those wrinkles are worth noting. But the core Lockean question is structurally identical: whether, by virtue of having been born with great talent to which he added his labor, Chamberlain becomes entitled to whatever the market will pay him for exploiting that talent. Nozick, famously, replies of course he does, because if X and all the other fans owned the 25 cents they paid for the tickets to begin with, and then voluntarily chose to transfer it to Chamberlain, then Chamberlain must own it as well. But as the above excursion into WC’s land investment should have made clear, X’s willingness to transfer the 25 cents is essen- tially irrelevant to resolving that problem. The question is whether Chamberlain owns outright to begin with, unencumbered by any obli- gations to society, the thing for which he was paid by X-the market value of his human capital.

Right Locke’s argument that he does would go roughly as follows. In Locke’s Second Treatise, one’s right to the fruits of her labor derives from an even more fundamental right: the right to her own person.= Whatever else we mean by “own person” in this context, it must surely include one’s natural physical endowments. Any notion of the self that stripped such things out, Nozick and others have argued, would be a hopelessly thin notion of the self.34 Therefore, in saying people own their own persons, we must mean (among other things) they have a right to the fruits of their talents. Thus, Chamberlain mixes his labor (which he “owns” in a Lockean sense) with those talents (which he owns in an even stronger Lockean sense) to produce a valuable asset. If, as suggested above, Right Lockeans would argue that when WC mixes his labor (more precisely the $5,000 fruits of past labor) with the land, which he did not previously “own” in a Lockean sense, he acquires all rights to the land absolutely as against any claims by the state, a fortiori they would argue that when Chamberlain mixes labor with his natural talents, which he does own, he acquires all rights to the resulting asset (the ability to play spectacular basketball) absolutely as well.

Left Locke, on the other hand, would say that Chamberlain’s natural talent is the result of pure luck, which creates no moral desert on his part. It is true that he mixed considerable labor with it to produce his

33. Two Treatises, Book 11, sec. 27. 34. Anarchy, p. 228.


high level of skill, and is entitled to fair compensation for that labor. But a willingness to work hard is not in short supply; Chamberlain works no harder than the 50th ranked basketball player who earns iliooth of his salary, or for that matter the typical day laborer who earns i/ioooth. As a result, very little of the money that Chamberlain commands for one night’s gate (let us say $1,000 out of $250,000) represents a return on that hard work. The remaining $249,000 reflects monopoly rents he can ex- tract because of the combination of peculiarly strong demand for spectacular basketball playing, and the natural scarcity of talent to supply it at his level. As between Chamberlain, who did nothing to deserve that good luck, and society, which supplied the peculiar tastes and material conditions that made his scarce talents valuable and exploitable, society has the stronger claim on that surplus value.35

It is not my purpose to defend either of these views in preference to the other, or to some third alternative that finds a midpoint between them or departs from different premises entirely. It is merely to point out that the choice between them has nothing to do with whether X voluntarily forks over a portion of that surplus value, in the form of a 25 cents admission fee to see Wilt play. To drive the point home, it should be noted that as with WC’s land, society could lay claim to a portion of that surplus value even if Chamberlain never sold it to X or any other willing fan. As any economist would recognize, Chamberlain is wealthier the moment he is born with vast basketball talent than an otherwise identical child without that talent. (If you doubt it, ask yourself whether you would pay something-indeed quite a lot-to be born Chamberlain instead of that other fellow,) Exactly how much wealthier fluctuates year by year, as the taste for professional basketball, disposable income of fans, bargaining power of players, and assessments of Chamberlain’s talent change, and as Chamberlain gets closer to the age he could cash out that talent. But at least in theory, we could tax him on the value of that income-earning

35. The most famous recent version of this argument for treating individual endowments as part of a common pool, available for redistribution as society sees fit, is given in Rawls’s Theory ofJustice (1971). Rawls’s argument differs from the Left Lockean argument offered here, not merely in the hypothetical contractarian procedure employed to reach this conclusion, but also in its substantive scope. Rawls, unlike my fictive Left Lockean, would throw the returns to hard labor- Chamberlain’s $iooo-into the common pool as well, on the ground that the “superior character” that enables people to cultivate their talents through hard work is equally the product of (undeserved) good fortune in family and social circumstance. Idem, 103-104.


potential at the moment of birth, with appropriate adjustments each year to reflect changes in its value. Such a tax, which economists and tax the- orists call an endowments tax, would be exactly analogous to a tax levied annually on appreciation in the value of WC’s land.

There are many reasons why no sane person would seriously suggest levying such an endowments tax on human capital. Some of those reasons-problems of valuation and liquidity-also arise with respect to financial capital like WC’s land, but are far more severe in this c0ntext.3~ Other reasons are unique to human capital. Perhaps the most serious is the libertarian concern that when we tax people on the full market value of their assets if put to their highest market use, we indirectly pressure them to put those assets to such use. That fact may not bother many people when dealing with financial assets.37 But it would disturb almost everyone when dealing with human capital. To take an example near to hand, if we tax Michael Jordan on what he could have earned from the Chicago Bulls when he throws that life up to be a third-rate, unem- ployed baseball player, we indirectly coerce him to continue playing basketball in order to pay his tax bill. Most people would find that result a violation of personal autonomy that is distasteful in the e~treme.3~

36. As to valuation, Chamberlain’s talent won’t be revealed at all for many years, and even once revealed may be hard to value until shortly before he is in a position to exploit it professionally For people with less clearly specialized talents, even identifying what market(s) to value those talents in would be close to impossible. Finally, people are born with all sorts of personal endowments (loving or well-connected parents, good health, good looks, intelligence, the “right” race or sex) that give them ex ante a much higher earning capacity than an otherwise identical person who lacks them. Which of these endowments are to count for tax purposes, and how do we value them? As to liquidity, while many people might pay a lot to have Chamberlain’s talent, because of severe agency problems not present in most forms of financial capital far fewer would pay a lot to have a future interest in Chamberlain’s own development of his talent-for example, by lending him money at age 15 against his future expectancy of high earnings. 37. One notable exception is personal residences. Many states have adopted measures

like California’s Proposition 13, which restrict the power of the state to levy a property (wealth) tax on the appreciated value of people’s personal residences. One of the motiva- tions for such measures is to protect people’s ability to continue living in homes they have grown emotionally attached to but could no longer afford to acquire at market rates, rather than being forced to rent or sell them at market rates to others who (given their income level) value the property highly enough to pay the market-based tax Another way of describing that decision is that we let people consume the value of their personal residences rather than forcing them sell them, even when the decision is economically subop- timal (measured by market value), because we think there are important interests of per- sonhood at stake.

38. One should distinguish universal concerns about human autonomy in the context

244 Philosophy & Public Affairs

In light of these considerations, virtually all Left Lockeans would hold off taking what they see to be society’s share of Chamberlain’s endowments until Chamberlain cashes them out by playing basketball for money. But the critical point for present purposes is that, as with WC’s land, under the Left Lockean view when we ultimately do tax Chamber- lain on the $250,000 he receives from X and his other fans, it is not because we think those fans had no right to transfer the 25 cents to Chamberlain, in exchange for the pleasure of watching him play. It is because we believe that Chamberlain has no right to keep it all, because it was paid for talents he did not earn, in a strict Lockean sense, and which are exploitable only because of the society in which he lives.

I’ve focused only on the portion of Chamberlain’s earnings reflecting monopoly rents, because that is the aspect of market exchange that has given Nozick and other Right Lockeans the most trouble, and hence the one for which Nozicks justice in transfer argument is doing the most illicit work. But the same logic that makes X’s transfer irrelevant to establishing Chamberlain’s Lockean right to the $249,000 that represents monopoly rents makes it irrelevant as well to his right to the remaining $1,000 that represents the return to hard work. If we conclude Chamber- lain has a right to that $1,000, unencumbered by any societal lien, it is because we believe that twelve hours a day practicing on the basketball court represents the sort of sacrifice that gives us an unencumbered moral entitlement to the value it creates, not because X paid for that value willingly.

I do not mean to suggest there might not be much to be said on other grounds for a rule that lets people keep surplus value, or economic

of such an ex ante tax on earnings potential with those Nozick expresses about an ex post tax on actual earnings, which he equates with “forced labor.” Anarchy, pp. 169-70. Nozick is correct that such an ex post income tax will cause many people who would have entered the work force in any event to work longer hours or at a different occupation than they might otherwise have chosen in a world without such a tax, in order to leave them with the same desired after-tax income. But most people would regard this sort of compulsion as different in kind, not merely degree, from the sort imposed by an endowments tax.

It should be noted as well, although development of the point is outside the scope of this paper, that problems of valuation, liquidity, and autonomy also provide the answers to the questions Nozick poses, erroneously believing them to be rhetorical, as to how we could justly tax people’s actual earnings from labor while forbearing from taxing them on the psychic pleasure they get from leisure. Anarchy, p. 170.


rents, in a wide variety of situations.39 But within the scheme of rights Nozick has adopted, those arguments should be made, and their difficulties faced, in elaborating and defending the content of “justice in acquisition”-in particular, in Nozick‘s terms, “the extent of what comes to be held by a particular process” of just acquisition. Nozick has failed to do that. Invoking his principle of “justice in transfer” obscures that failure. It does nothing to redress it.

39. Among other tacks, one could try to defend it by developing the intuition, derived by John Bates Clark and others from marginal productivity theory, that we are morally entitled to benefit in proportion to the benefit we bestow on others; the essentialist, met- aphysical wing of Lockean libertarianism, that says because we own ourselves in outright freehold, we necessarily own in outright freehold whatever we mix ourselves with the Hayekian argument that individuals’ right to their marginal product is a necessary byproduct of their right to personal freedom, which can be maximized only through the spontaneous ordering of the market: the argument that most rents represent (on an aggregate, portfolio basis) a fair return to ex ante risk, private ownership of which is defensible on utilitarian or Lockean grounds, or, alternatively, on the ground that it is too costly admin- istrativelyto separate the rent component from a fair return; or the argument that however weak an individual’s claim to the surplus value of her holdings might be, the claim of the fictional entity, society, working through its fictional agent, the state, is even weaker.

Documents

Wilt Chamberlain Revisited: Nozick's "Justice in Transfer" and the Problem of Market-Based Distribution