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Income Distribution

       Justin Havens           

 

                   

I had a philosophy class a while back; one of the first exercises we had was to discuss the morality of three hypothetical societies based entirely on income stratification.  For simplicity we used five quintiles:

 

Weekly Earnings

1st Quintile

2nd Quintile

3rd Quintile

4th Quintile

5th Quintile

Society 1

$1,000

$1,000

$1,000

$1,000

$1,000

Society 2

$1,000

$2,000

$3,000

$4,000

$5,000

Society 3

$1,000

$10,000

$100,000

$1,000,000

$10,000,000

 

The class argued back and forth discussing differences in incomes.  Some thought all should earn the same, most thought there should be some, but not a lot, of difference.  A few thought there should be vast differences in incomes.  Eventually the class settled on society number two as the most moral.  They reasoned some difference was okay (probably because they were college students hoping to turn their degrees into more income) but vast difference was bad because it would lead to jealousy and a vast difference between people is BAD.  Take a minute and think what society looks to be the most just, or moral, based upon income levels.  What is your answer?

 

The correct judgment is made based upon the rules followed, not the end result.  Consider this: I can successfully be argued that society number two is the most just from many perspectives.  Arguing from the Marxist perspective, from each according to ability to each according to need, I say obviously some need more than others to survive (diabetics, cancer sufferers …) hence a society with different income levels is just.  As a Capitalist I say that some people work smarter than others do, therefore; they deserve a richer reward. Many will look and say that the only way the top quintile can ‘earn’ a salary that is 10,000 times the amount of the bottom quintile is if they steal it; therefore the third society cannot be just.  The argument against society number three is closest to the correct answer.  The correct answer is, surprise, a question.  Which society is the result of voluntary exchanges and individuals cooperating with one another?

 

You must question the origin of the society to determine which is just.  It is possible that all three societies are just, it is also possible that all three societies are unjust.

 

When we buy something it is a voluntary exchange.  I voluntarily give some minimum wage earner a little money to serve me at a restaurant.  You voluntarily give Bill Gates some money for the OS on your computer; he voluntarily grants you a license to the OS code.  In both cases there is a redistribution of wealth.  The frequency of these voluntary exchanges determines what the annual income, and eventually wealth, stratification will be.  If the food service worker raises the amount they want to serve me beyond a certain point I will not go to the restaurant.  At some price we reach a point where what they think their time is worth is more than what I think and I will serve myself at home rather than pay them.  The same can be said of Bill Gates, at some point the price of his OS becomes so high I would rather write my own code or go without than pay him.  The point is that which income stratification is just ‘depends’ on what occurs from the individual actions.  You have no way of knowing what price I find just for the restaurant worker or for Bill Gates for that matter.  No control board can determine a just price level for all exchanges.  At any price they set it will violate what somebody rightfully finds just.   The just price level is arrived at by the most democratic process known: the free market.  If you sell something (your labor included) the price is just for you.  I cannot force you to sell.  Who should judge what is just for you?  What can be more just than individuals making the choices that determine their earnings potential and how they spend their own money?  How better to arrive at what individuals think is just than to allow individuals to make their own decisions and then live with the consequences of their action?