Rawlss Theory of Social Justice and Neoclassical Theory of Distribution - Assignment Example

Running head: ANSWERING ECONOMIC QUESTIONS 1. Discuss the strengths and weaknesses of two theories of distribution. Rawls’s Theory of Social Justice Neoclassical Theory of Distribution 2. Critically evaluate Hayek’s argument that social justice is a ‘mirage’ Name: Course Information: Professor Information: Date Due: 3rd September 2012 1. Strengths and weaknesses of theories of distribution Rawls’s Theory of Social Justice This is a theory that was developed by John Rawls. According to this theory, principles of justice determine distribution of benefits and burdens in a society (Rawls, 1971). According to this scholar, people are entitled to basic liberties. Besides, they ought to be in a position to access social and economic opportunities and maximize their benefits. The theory of Rawls gives a criterion for defining a just society. Different from utilitarian, Rawls’s theory do not concentrate on maximizing wealth but emphasizes conditions of fair social contract that has been negotiated by the public. Veil of ignorance applies, which then suggests that negotiators are unaware of their future place with respect to ownership of productive goods. Under such conditions, the negotiator is obliged to choose a set of rules that favours those who are worst off in the society. The strength of Rawls theory thus lies on the feature that primary goods are availed to the poor in the society. Compared with classical liberalism, Rawls presented a more concrete idea of justice. Veil of ignorance has strength of motivating people to address distribution in an impartial manner. The highly formal nature of Rawls’s theory is a weakness owing to reason that it pays attention to creating an environment of fair play and not actualizing specific outcomes or results. In an argument by Sen (1992), fair play i.e. equal access to same resources carries different meanings to different people. Besides, Sen affirmed that capabilities should be equalized and not resources. In opposition to Rawls’s view, Nozick (1974) reiterated that justice in distribution of wealth and income depends on changes through history i.e. what led to that distribution. The researcher held a position that essence of wealth distribution is in property rights and procedural justice. Nozick also disagrees with the concept of social justice and emphasized that a society is made of individuals with own lives. In terms of central distribution, Nozick stated that such a system does not exist. The researcher posits distribution is a consequence of decisions made in a free society. Weakness of Rawls’s theory is further visible in an argument made by Marxist. Marxist suggested that capitalist societies with a small group of elites who own and control most of productive goods are in a position to set rules on distribution of income and wealth. Neoclassical Theory of Distribution This is a theory that was developed towards the end of19th Century in Europe. The strength of this theory is its idea of separating economics from politics. Compared with liberal theory, neoclassical paradigm effectively removed politics from economics. While the classical theory attempted to address how power was distributed amongst property owners and industrialists, neoclassical focused on power distribution between industrialist and workers (Weintraub, 1970). This theory holds that profits are determined by marginal productivity of capital whilst wages depend on marginal productivity of labour. The implication of this relationship is that if wages of workers were increased, there would be unemployment. The theory assumes that individuals are rational, firms maximize profits and individuals maximize utility, and that individuals have information. The greatest strength of this theory is the treatment of wages, interest, and land rents in a similar manner (Encyclopedia Britannica, n.d). This is different from classical theories, which gave divergent explanations on profits, wages, interest, and land. The integration of neoclassical theory into the theory of production gives it strength. Finally, the theory uses simple mathematical statement in the explanation of the theory of distributive shares i.e. Q=f (LK), thus is scientific (Samuelson, 2004). Weakness of neoclassical theory mainly lies in the assumptions. The theory assumes that individuals are rational, which implies that human nature has been ignored. It is imperative to note that neoclassical use of “economic man” as opposed to real man is a weakness to the theory thus criticized in terms of realism. Secondly, the theory reiterates that firms are driven by profit maximization at the expense of addressing social issues. This indicates normative bias where the theory concentrates on a case where as one individual is made better, the other is made worse off i.e. Pareto Optimality (Hahn, 2008). Besides, it is difficult to apply neoclassical theory in an economy that is undergoing and is using capital goods. 2. Hayek’s argument that social justice is a ‘mirage’ In his book Law, Legislation, and Liberty, Hayek termed social justice as a mirage (Hayek, 1976). Concisely, the researcher does not imply that social justice is meaningless but his argument lies on the proposition that distributive justice or rather made order is not possible in an open society. The work this researcher informs readers of substantive equality and distributive justice, which have been painted to be complex. Besides giving information on the importance of personal or subjective thoughts, Hayek’s literature demonstrates how a society ought to appear that is at variance with personal interest. Hayek’s argument began by differentiating general rule and public interest. Hayek reiterates that general rule should be applicable to all people while public interest simply looks at the needs of majority. The scholar’s claims strongly support the role of market in controlling economic activity. In an open society, Hayek emphasized that justice entailed end-independent rules as opposed to end-dependent rules (Hayek, 1976, p. 31). This followed a reason that millions of decisions made in an open market culminates into a spontaneous order. Hayek proposed that these spontaneous decisions made by millions of people in the society were favourable compared with decisions made by small group of elites who do not have sufficient information on prices, wages and the forces of demand and supply. In line with this, Hayek identified the real economic problem as mobilization, communication, and utilization of knowledge and not optimization in market full of information. In recognition of the fact that knowledge in a civilized society is power, Hayek noted how such knowledge is distributed in society i.e. is dispersed through individuals. Depending on personal resources and circumstances, each person has knowledge on actions that can be successfully executed. How to control individual actions is the only pending matter hence the concept of artificial and spontaneous order. Artificial orders reflect regulations that have undergone conscious human deliberation. In such a case, each individual has a role in the pursuit of goals and objectives. Conversely, members within the spontaneous category do not operate on objectives that were imposed on them but each person follows own objectives and goals. The expectation of people under spontaneous order is that they will receive profits in the society using their own resources. Control or rather coordination of these members is not made centrally or consciously but is the result of unconscious human action. It is essential to note that whilst made orders incorporates founder’s intentions, spontaneous orders develop through generational experiences. Hayek affirmed that justice has both spontaneous and made orders (Amagi, 2010). To comprehend the respective rules of conduct of spontaneous and made orders it is necessary to highlight their corresponding rules of conduct. While made orders relies on ad hoc legislations that gives specific prescriptions of rules of conduct, spontaneous orders relies on personal behaviour to coordinate actions. Often human beings follow general and abstract rules of conduct presented by the judiciary. Contrary to this, spontaneous order views law as a condition and not a means to reach an end. The purpose of law in this scenario is to ensure effectiveness in pursuing personal purpose. It only ensures that actions of different people are orderly. There is no doubt that within the two paradigms of made and spontaneous order, the term Justice has varied meaning. Specifically, Justice in a made order is a tool deployed by central authority in the process of distributing means of actions. On the other hand, justice in a spontaneous order involves respecting rules of conduct. This forms a reason for Hayek’s assertion that social justice within a spontaneous order lacked meaning and was only functional in a planned order. Concisely, to actualise social order, deliberate human action, made order, is not necessary. References Amagi, M. (2010, March 2). Hayek’s “The Mirage of Social Justice”. Retrieved September 1, 2012, from http://www.gmsplace.com/?p=3931. Encyclopedia Britannica. (n.d). Distributive Theory: The Neoclassical or Marginalist Theory. Retrieved September 1, 2012, from http://www.rrojasdatabank.info/brit08.htm. Hahn, F.H. (2008). "neoclassical growth theory," The New Palgrave: A Dictionary of Economics. Hayek, F.A. (1976). Law, Legislation, and Liberty: the Mirage of Social Justice. London: Routledge and Kegan Paul. Nozick, R. (1974). ‘Anarchy, State and Utopia’. New York: Basic Books. Rawls, J. (1971). The Theory of Justice. Cambridge, MA: Harvard University Press. Samuelson, P. A and William, D. N. (2004). Economics. New York: McGraw-Hill. Sen, A. (1992). Inequality Reexamined. New York and Cambridge, MA: Russell Sage and Harvard University Press. Weintraub, E. R. (n.d). Neoclassical Economics. Retrieved Septermber 1, 2012, from http://www.econlib.org/library/Enc1/NeoclassicalEconomics.html. Read More