Are free markets unjust?

A few days ago I posted a piece asking why The Left has such an issue with free markets. One commenter took me to task (ever so slightly patronisingly):

I care about the well-being of humans, and I care about reducing inequality (and lots of other things). I support, for instance, rights to gay marriage because these rights can massively improve quality of life for lots of individuals, without really harming anybody. I also oppose unrestricted free markets when they lead to relatively poor quality of life for lots of individuals.

The difference is that I do no believe that the outcome of a free market is just, per se. In other words, my morals and opinions about how society should operate are derived without consideration of markets. Markets are merely a tool to realize my goals.

At the core of this argument - at least as it seems to me - is a suggestion that the outcomes of free markets are, in some way, unjust. I'm going to put to one side the argument about "unrestricted free markets" leading to a "relatively poor quality of life" because it seems to me something of a nonsense.

Are free markets unjust? The post in question referenced the opening lines of Adam Smith's other book - "The Theory of Moral Sentiments" and this is, maybe, helpful in looking at justice because it is a central theme in Smith's book:

Society, however, cannot subsist among those who are at all times ready to hurt and injure one another. The moment that injury begins, the moment that mutual resentment and animosity take place, all the bands of it are broke asunder, and the different members of which it consisted are, as it were, dissipated and scattered abroad by the violence and opposition of their discordant affections. If there is any society among robbers and murderers, they must at least, according to the trite observation, abstain from robbing and murdering one another. Beneficence, therefore, is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it.

So free marketers much have regard to justice as well as prudence and the most common criticism - seen above in Brian's comment - is that free markets are solely concerned with utility: "Markets are merely a tool to realize my goals". And Brian suggests that, if "unrestricted", those markets may deliver an unjust outcome - we much therefore manage markets so as their outcomes are just.

The problems here are twofold - firstly, are free market outcomes ever unjust? Should we prevent or limit people's freedom to exchange because we fear that some will receive no benefit - or actual harm - from the process of exchange? Secondly, is it right - just - to restrict someone's liberty so as to deliver, we hope, a more just outcome elsewhere?

The problem with Brian's argument (which I'm taking as archetypically left wing) is that he sees a just outcome as being an equal outcome - "I care about reducing inequality". But if the consequence of this equal outcome is that everybody is, on average, poorer, is that a just outcome? We have limited or directed exchange to secure equality of outcome and in doing so have removed value from that exchange - everyone is poorer: equally poorer but still poorer.

What is unjust about free exchange - about me seeking to purchase a second hand Land Rover? Is the injustice that not everyone has the wherewithal to buy a second hand Land Rovers? 4x4s for everyone! But isn't intervening in the market to make second hand Land Rovers cheaper - the outcome that delivers social justice - simply removing value from the people with second hand Land Rovers to sell? And isn't this equally unjust?

For Adam Smith, justice was primarily about how we behave:

The principle by which we naturally either approve or disapprove of our own conduct, seems to be altogether the same with that by which we exercise the like judgments concerning the conduct of other people. We either approve or disapprove of the conduct of another man according as we feel that, when we bring his case home to ourselves, we either can or cannot entirely sympathize with the sentiments and motives which directed it.

So if we behave honestly, honourably and fairly in our exchange - in the market - then justice is served. And, if the market does what markets do, the outcome will also be fair and just because both buyer and seller have obtained value from their exchange. Preventing this from happening or saying only certain parties can engage in exchange is not just. At the level of the individual, not only are markets just but limiting, managing or directing them - ending what Marx called the "anarchy of production" - is unjust.

The problem for The Left, however, is that they see poverty or, more commonly, inequality in society and ask whether - given we've a market society - this is just. Surely, they ask, there is some better way of organising exchange that will mean there isn't any poverty or, more likely, inequality. And this is a noble aim until you begin to ask what happens in a market. When I buy that second hand Land Rover I get a benefit - value - by having the off-road vehicle my heart desires. And the person selling that vehicle has the cash I've given him - value - to use elsewhere in the marketplace to meet his heart's desires. There is no point at which free exchange leads to "relatively poor quality of life for lots of individuals", quite the opposite.

None of this is an argument against regulation, laws - Smith is very definite about the consequences of injustice being punishment - but that those laws should be directed to ensuring that exchanges in the market are honest, honourable and fair. Nor is this a pro-capitalism argument - there's no reason at all why socialist forms of ownership shouldn't operate effectively in a free market. Rather it's an argument that justice and equality are not synonyms and that, if we want a fair society, a free market system is more honest, honourable and just than a system designed by government, however well-intentioned.

It is true, however, that without justice the market is not free but rather that "society of robbers" Adam Smith describes. But justice is not achieved through coercion, price-fixing, artificial monopoly or the damning of commerce. Free markets are just only if we act - through social mores, honour if you will, as much as through laws - to ensure that justice is served. As Smith put it:

If [justice] is removed, the great, the immense fabric of human society, that fabric which to raise and support seems in this world if I may say so has the peculiar and darling care of Nature, must in a moment crumble into atoms.

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