24. Kirzner on the Morality of Capitalist Profit

CHAPTER 24

Kirzner on the Morality of Capitalist Profit*

Israel Kirzner develops insights into the moral legitimacy of capitalism and especially of entrepreneurial profit. This paper tries to echo or strengthen Kirzner’s points by relating them more closely than he does to the foundations of ethics. Although I have no reason to suppose so, Kirzner may conceivably resist being linked with one version of utilitarianism, a version tracing as far back in the history of philosophy as David Hume and even earlier, forthrightly expounded by Kirzner’s mentor Ludwig von Mises and by Henry Hazlitt, and employed at least tacitly by Friedrich A. Hayek.¹ If Kirzner should think I am trying to draft him into an unwelcome alliance, I can only apologize and only hope that he will nevertheless accept my contribution to a dialogue that he himself has actively advanced.

KIRZNER’S POSITIVE ANALYSIS

As I just implied, Kirzner does not claim to be setting forth a novel ethical position or to be contributing to ethical theory as distinct from economics (1992b, chap. 13; 1989, p. 98; but see 1979, p. 211). He does not try to show that the critics of capitalism have used morally flawed criteria. For his immediate purposes, he accepts existing and widely shared ethical intuitions without challenge. He recognizes that someone might reject his conclusions, independently of the economics, on different ethical grounds. (This characterization of his views derives from 1992b, p. 209; 1989, pp. 129-130; and, more broadly, from all his writings listed in the references.)

Kirzner argues, as positive economic analysis, that capitalism works otherwise than its critics and most of its defenders believe. He traces the entrepreneur’s pure profit to generally unappreciated facts. The entrepreneur creates wealth, practically ex nihilo, by discovering and exploiting opportunities. Kirzner sharply distinguishes these acts of discovery from acts of deliberate production (1989, p. 166). Instead of taking resources away from anyone else, the entrepreneur creates what did not exist before, benefiting other persons as well as himself. The prior physical existence of a diamond discovered on a remote mountain is irrelevant to the creative act and the moral entitlement it engenders. Kirzner sees the discoverer/producer as entitled to the product not because he transformed and combined inputs over which he already held just title but because he genuinely originated it. No one has any right to deprive the creator of the enjoyment of his creation (1989, pp. 150,153).

Of course, an entrepreneur does not create ex nihilo the entire market value of the products of his discoveries. Typically, he combines his creativeness with the services of already existing resources and factors of production, paying their owners for them. Kirzner focuses on the net value of results remaining to the entrepreneur beyond all necessary factor payments. This pure profit deriving from the entrepreneur’s creation is the subject of Kirzner’s distinctive theory.

Allegedly, as Kirzner notes, discoveries depend on good luck, which seems a weak basis for capitalist property rights. But luck does not operate alone; motivated alertness also enters into discovery (1989, pp. 161-162; 1992b, pp. 221 ff; F.A. Hayek speaks somewhere of Findigkeit).

Kirzner does not maintain that a factual account of discovery and creation by itself constitutes a justification of capitalism; he does not claim to be dissolving the dichotomy between “is” and “ought.” He appeals not only to economics but also, as he must, to moral intuitions (about which I say more below).

APPROPRIATION AND ENTITLEMENT

Kirzner finds the “entitlement” theories of John Locke, John Bates Clark, and Robert Nozick not downright wrong but incomplete or inadequate. These theorists tacitly take the economic pie, or the resources used to produce it, as given. They deal with the supposed issue of justice in appropriating what already exists. Once, though, we recognize the creativeness of entrepreneurial discovery, “we can no longer be satisfied with a moral philosophy which, in its consideration of property rights and property institutions, treats the world as if the future is an unending series of fully perceived manna-deposits waiting to be assigned and distributed” (1989, p. 150; cf p. 161). As for pure profit, John Bates Clark’s purported marginal-productivity defense of capitalist distribution does not even claim to deal with it.

Nozick’s theory is unsatisfactory in a further way. It relies on John Locke’s justification of private appropriation of previously unowned resources from nature. The appropriator acquires just title by mixing his own labor with them, labor assumed to be unquestionably his property. Locke hedges this justification with the proviso that the appropriator leave “enough and as good” resources available for latecomers. This proviso can scarcely ever be met, however, since appropriating resources from an unowned common stock brings closer a stage at which a subsequent appropriator simply could not leave “enough and as good” available for still later would-be appropriators (1989, pp. 156—157). It is no answer to postulate that the resources are so superabundant in relation not only to present human wants but even to all future wants that they would never become economically scarce. Few if any resources meet such a specification, leaving Locke’s theory relevant only to an imaginary world. If any resources were inexhaustibly abundant and destined to remain free goods forever, they would hardly be resources in an economic sense; and making them private property would be pointless in the first place. It is only in a world of scarcity that private property matters.

Since Kirzner’s doctrine does not pertain to appropriation of already existing things, it is unencumbered by any Lockean proviso (1992b, p. 225). In seeing that some hitherto unrecognized and valueless aspect of nature might be put to economic use, the alert entrepreneur in effect creates the result. He cannot deprive anyone of what did not previously exist. No question arises of leaving “enough and as good” for others.

David Schmidtz (1991, chap. 2) confronts the Lockean proviso in a way different from but reconcilable with Kirzner’s. Schmidtz reformulates it as justifying an appropriation of resources from nature if it does not worsen and especially if it improves the opportunities open to other persons. Instituting private property does in general do so, while leaving things owned by no one or owned in common practically ensures their ruin through a “tragedy of the commons” (as Hardin 1968/1969 called it). A commons is tragic precisely when things are economically scarce and leaving “enough and as good” for everyone just is not possible. By avoiding the tragedy, private property gives even people other than the initial appropriators more and better opportunities to prosper from specialization, trade, the prudent administration of resources, and the accumulation of wealth.

Beyond his own distinctive contributions, Kirzner well understands other strands in the justification of private property and profit. Pure profit, or the lure of it, helps mobilize entrepreneurial alertness, including alertness to potential wants of consumers, and helps transfer control over resources out of relatively less into relatively more competent hands. Kirzner knows about decentralized decisionmaking, the use of scattered knowledge, and the productivity of a capitalist system. But he does not dwell on these familiar themes because he wants to answer criticisms of capitalism made on moral grounds.

CASES OF QUESTIONABLE ENTITLEMENT

Defense of the capitalist system does not extend to whatever occurs within it. Kirzner would contend (I am confident) that transfer-seeking through government, even when done by entrepreneurs, is not capitalism. Business alertness does not justify just anything (1989, p. 177). We may moralize against traders who exploit the impossibility of sharply delineating the legal from the illegal, or even the moral from the immoral. No system can make legal, moral, and actual behaviors fully coincide. Part of the rationale of ethics is that it can deal, flexibly, with innumerable individual cases that could not be foreseen in detail and for which detailed rules could not be laid out in advance.

Kirzner is uneasy at the imaginary case of one of several travelers in a desert who races ahead to appropriate a waterhole so he can charge the others an exorbitant price for water (1979, pp. 222—223). He seems less uneasy, though, than I would expect. Racing ahead implies already existing knowledge about the waterhole and its importance. Instead of making a creative discovery, the racer seizes a hold on his fellows by blocking them from an opportunity.

More fundamentally, economic rivalry and market transactions are not appropriate to all human relations. Not all behavior conforming to the logic and ethics of the capitalist system is ethically acceptable for that reason alone. Part of the rationale of an ethical code is that it would be impossible for the law to codify and enforce all desirable character traits and all desirable lines of behavior in all imaginable and unimaginable circumstances. The logic of an ethical code requires adhering to its spirit rather than to minutely specified rules; it requires a certain flexibility in its application. People’s moral obligations toward one another depend on many circumstances, including what kind and degree of solidarity or loyalty among them are appropriate.

In the impersonal market relations of the nationwide and worldwide “great society” or “extended order” (as Hayek 1989 calls it), no special solidarity or loyalty is appropriate—nothing beyond honorable dealing and refraining from lying, cheating, stealing, and coercion. The situation is different within relatively small and intimate groups—family, friends, and perhaps enthusiasts devoted to some shared cause. In such groups, the attitudes of solidarity and altruism, presumably inherited biologically from the prehistoric days of life in small hunter-gatherer bands, are more appropriate. Even or especially within an impersonal extended order, the intimacy available within small, close-knit groups has great psychological value. Within them, emulating market behavior, pursuing narrow selfinterest, and insisting on cost/benefit calculations and careful measurements of quid pro quo would be destructive. Such market-oriented behavior would subvert the solidarity and loyalty appropriate to such groups and would tend to “crush” them (Hayek 1989, p. 18).

Venturers on an expedition through a hazardous desert, like explorers in Antarctica, are in a sense colleagues, even if they happen not to belong to the same organized group, or so it seems to me. They owe a certain extra respect, solidarity, and loyalty to one another. Character traits conducive to recognizing this special obligation are praiseworthy on broadly the same utilitarian grounds that underpin ethical principles in general. To turn the adventure into a zero-sum struggle, to “race ahead” for a chance to exploit one’s colleagues, manifests antisocial traits. To condone such behavior in the name of the ethics of capitalism would ill serve both capitalism and ethics.

In another case, also, Kirzner implies some unease about the moral legitimacy of profit. He repeatedly (e.g., 1989, pp. 49—50) mentions Paul Samuelson’s example of a commodity speculator who reaps a big profit by learning about a crop failure just minutes before other traders do. True enough, speculators perform a socially useful function in acquiring information relevant to the timing of the consumption of scarce goods and in using that information to affect prices appropriately. But just what justifies the big profit of Samuelsons slightly early speculator?

If we agree that his windfall is unjustified, we agree with fuller knowledge of the situation—after all, we ourselves thought it up—than people in a comparable real-world situation would possess before hindsight became available. Anyway, what do we morally disapprove of in such a case? We probably would feel revulsion at profiting through somehow delaying the availability of information to others. Obstructing the transfer of information is the opposite of productive.

Someone who is in the business of bearing risks, however, hoping to profit on average over time from his superior instincts and decisiveness, is rendering a public service. If on occasion he is alert enough or even just lucky enough to receive profitable information early, well, that is part of the game. We could hardly expect speculators to operate if they had to stand their losses from bad luck themselves but were never allowed to keep the fruits of good luck.

Differences in knowledge of prices enter into the question, faced by Kirzner (e.g., 1989, p. 104), whether transactions made in ignorance of the full potential values of the things exchanged are nevertheless truly voluntary. Robert Nozick (1974) linked the moral legitimacy of holdings of property to their acquisition in voluntary transactions. Suppose—my example, not Kirzner’s—that an art dealer sees the great value of an old painting brought to him by its uninformed owner. Is the dealer morally justified in exploiting its owner’s ignorance by buying the painting cheap?

Possibly he is, provided he had made it clear that he was a sharp trader greedy even for questionable gains. Ordinarily, though, or so I understand, art dealers at least tacitly represent themselves as experts combining the roles of brokers, dealers on their own account, and de facto advisers; and they want to deserve a long-run reputation for honorable dealing in all these professional capacities. Ordinarily, then, the dealer has some fiduciary obligation to a novice who comes to him possibly for a business deal but also partly for advice. More generally, it may be in a business firm’s own long-run interest to lean over backwards in being honest, telling not just the truth but the whole relevant truth. The just price is not an entirely nonsensical notion. (Kirzner is indeed aware, e.g., 1979, p. 209, of notions of honor, fiduciary responsibility, and just price.)

Similar issues arise about the moral legitimacy of stock-market profits deriving from inside information. Much depends on the details, including how the trader came by the information and what fiduciary obligations he might have to the various parties involved.

What policy implications follow from imagined cases like those of the person who races ahead to the oasis, Samuelson’s commodity speculator, the art dealer, and the insider trader? It would be extremely difficult to draw up specific rules that would suitably cover all such conceivable cases. Much behavior must be left to the informal pressures of moral judgments and reputation effects. We scarcely want—do we?—to establish a government authority charged with appraising everyone’s moral entitlement to each bit of his income and with rectifying allocations of income deemed unjustified. Institutions and policies simply cannot be devised to guarantee ethically appealing detailed outcomes in each individual case. As Rutledge Vining (1984) emphasizes, legislators do not have a handle on ultimate outcomes; they can only tinker with rules and institutions.

A discoverer does not in general have an obligation to share the fruits of his discovery just because a rival would soon have made the same discovery on his own anyway. In Kirzner’s example (1989, pp. 167-169), one person on a beach stealthily but legitimately snatches a spectacular seashell from beneath the nose of someone entranced by the sunset. He has not “blocked discovery” by the sunset-watcher; he has simply been more alert.

In other cases, however, one transactor may have a moral duty to divulge information to another, although failure to do so does not necessarily entitle the other person to claim that he was robbed or cheated (1989, p. 170). “There appear to be a number of moral gradations, in regard to the reprehensibility of gaining benefit by failure to disclose available information” (1989, pp. 170-171). Doubts about the decency of benefiting from the removable ignorance of others seem to recede the more impersonal the relation is between the parties (1989, p. 171). Although we may well sympathize with persons whose ignorance is exploited, we should consider that they would probably be even less well informed and less well-off than under some system in which entrepreneurial profit were not allowed to provide the driving motivation (1989, p. 171).

ENTITLEMENT FURTHER CONSIDERED

Let us step back from our dubious or borderline cases and focus on wealth that the holder indisputably has created or has received by indisputably voluntary transactions untainted by ignorance. Even then, can we be sure that the holder is morally entitled to his wealth? Kirzner (1989, pp. 101-102) mentions Robert Nozicks (1974, pp. 161-163) hypothetical example of Wilt Chamberlain, who arranges for spectators to pay an additional 25 cents earmarked for him beyond the regular price of admission to his basketball games. Nozick holds Chamberlain fully entitled to this income. Still, one might disagree. By paying voluntarily, the spectators are not necessarily approving the financial arrangements and the additional inequality of income distribution that results; they are not necessarily indicating opposition to a supposed remedy through redistributionary taxation. The individual spectator might realize that he alone could not thwart the antiegalitarian result by boycotting the game, so he might as well attend if he values the performance sufficiently more than the ticket price plus Chamberlain’s 25 cents. Partly because, in economists’ jargon, an externality is operating, the voluntariness of the transactions does not automatically confer moral legitimacy on Chamberlain’s wealth. James Buchanan (1977, chap. 4) argues, in part, that Chamberlain’s large income is an economic rent, itself largely attributable to the society in which he has the good fortune of performing, and that other, equally voluntary, arrangements could distribute this rent much differently. Although I myself dislike the attitude of my hypothetical spectator, neither that critic nor Buchanan commits a logical fallacy.

In The Mirage of Social Justice (1976) and other works, F.A. Hayek dismissed “social justice” as an empty pair of words. Although one might speak of the justice or injustice of a deliberate parceling out of an existing stock of goods, such an evaluation cannot pertain to the pattern of distribution of income and wealth that results, unplanned by anyone, from the market process of innumerable decentralized decisions. (The result of the market process is not even a “distribution” in the strict, etymological sense.) One might as well discuss the justice or injustice of natural phenomena.

Although I have not looked up adverse reviews of Hayek’s work, I can well imagine a critic replying that it is unjust to leave a particular distribution of income and wealth uncorrected, however spontaneous it is and however little it is anyone’s fault, if it can be corrected without unacceptable side effects. Bad luck, or unfair shakes from nature, can in some circumstances and to some extent be remedied by being shared. Leaving remediable bad luck nevertheless unremedied might reasonably—I do not say conclusively—be deemed unfair.

Defenders of capitalism will have to do better than simply dismiss discussions of social justice and injustice as having no subject matter but mirages. John Rawls (1971) may have been wrong in writing about rectification of the natural distribution and in setting forth his “difference principle” of distribution, but he was not writing nonsense.

Let us milk the Wilt Chamberlain example further. Chamberlain’s large income flows from no special moral merit; he just enjoys the good luck of possessing talents that happen to command a high price. We might further complain about the bad taste among fans that confers big rewards on not particularly meritorious sports figures.

In The Constitution of Liberty (1960, chap. 6) F.A. Hayek does face the criticism that a free-market economy confers material rewards in an unjust way. The market values of the services of people and their property depend on many circumstances and seldom correspond to people’s moral merit. Some defenders of the market system deny the charge, replying that the market does indeed, if only in a rough and ready way, distribute rewards in proportion to merit. Hayek warns against this reply:

Any attempt to found the case for freedom on this argument is very damaging to it, since it concedes that material rewards ought to be made to correspond to recognizable merit and then opposes the conclusion that most people will draw from this by an assertion which is untrue. The proper answer is that in a free system it is neither desirable nor practicable that material rewards should be made generally to correspond to what men recognize as merit and that it is an essential characteristic of a free society that an individual’s position should not necessarily depend on the views that his fellows hold about the merit he has acquired, (1960, pp. 94-95)

Hayek goes on to examine the concepts of value and merit. He considers the advantages (connected with information and incentives) of letting market values guide people’s decisions about how to use their creativity and their other abilities. He asks what institutions would be required for trying to implement the alternative principle of distribution according to moral merit. He explores the psychological consequences of a state of affairs in which material rewards were supposed to be clear indicators of moral merit. His exercise in comparative-institutional analysis leaves the thoughtful reader recoiling in horror at the consequences of radically non-market-oriented methods of distribution. His whole chapter 6 is worth pondering at length.

On ethical grounds, nevertheless, a critic might question whether a person is truly entitled to whatever he has created through alert discovery or created in some more literal and pedestrian way. One might even question a persons Lockean self-ownership of his own body. After all, John Rawls (1971) argued that each persons physical and mental capacities are in some respects a morally arbitrary gift of nature and the environment and so are properly at the disposal of society in general.

I myself do not deny a person’s entitlement to his body and his creations; I do not agree with Rawls. I object, though, to prematurely resting judgments on such issues on undiscussable sheer intuitions. The judgments in question are not fundamental value judgments (to use a term that will become clearer in what follows). They are relatively specific judgments that themselves require grounding in the facts of reality and in one or more value judgments that are more nearly fundamental.

ORIGIN AND APPRAISAL OF ETHICAL INTUITIONS

Appraising capitalism on ethical grounds necessarily involves both the facts about how the system operates and the ethical standards themselves. Kirzner specializes, quite legitimately, in the positive economics of the issue; but room remains to consider the sources and force of the prevailing ethical intuitions taken for granted in his writings reviewed here.

Where did these intuitions come from? It seems plausible to trace them to social and perhaps biological evolution: acting in accordance with them conferred advantages on societies and individuals. On the account of F.A. Hayek (1989 and other writings), practices based on those intuitions have stood the test of social and perhaps biological evolution. Groups adhering to ethical precepts and institutions and kinds of behavior conducive to survival of the group and reproduction of its members do tend to flourish, while others wither. Groups have a better chance to prosper under traditions that conduce to the accumulation of wealth and to trade, including trade with outsiders. These traditions concern private property, saving, voluntary exchange, truthfulness, promise-keeping, and contract. Favorable traditions gain ground not only through transmission to successive generations but also by being imitated.²

Explanation of origins is not appraisal. Should one indeed approve of intuitions, precepts, and practices that conduce to the flourishing of groups and individuals? Well, it is the essence of value judgments—this one included—that they cannot be established purely by facts and logic. Some element of sheer moral intuition or emotion necessarily enters into the story.

SOCIAL COOPERATION

A plausible sweeping intuition (though not an irreducibly fundamental one) recommends what Ludwig von Mises and Henry Hazlitt, among others, have emphasized under the label social cooperation. Social cooperation characterizes a well-functioning society; it is the complex of institutions, practices, shared ethical standards, and even attitudes that foster peace, security, specialization, and the gains from trade and so ease fruitful cooperation among individuals striving to make good lives for themselves in their own diverse ways. Private property, the market, contractual liberty, voluntary associations, and the rule of law are key elements of it in successful modern societies. The idea, though not the actual term, goes back to David Hume and even to Thomas Hobbes, pioneers in the utilitarian tradition. Social cooperation is much the same as what John Gray calls “civil society” and Michael Oakeshott called “civil association” (Gray 1993, pp. 246, 275, and passim).

A version of utilitarianism centering on this concept appraises ethical precepts, kinds of personal conduct, traits of character, institutions, and policy choices according to how likely they are to serve or subvert social cooperation. It is practically the same thing as a comparative-institutions approach to evaluation. An adherent of this doctrine tries to contemplate and compare alternative sets of mutually compatible institutions. The criterion of social cooperation, together with positive analysis in economics, psychology, and other disciplines, recommends the precepts, attitudes, behaviors, and so forth conducive to an extended order, as Hayek calls it, and to many kinds of intimate relationships embedded in a healthy extended order. The criterion recommends truth-telling, promise-keeping, justice, respect for persons and individual rights, respect for private property, the transfer of property by consent, and even, within limits, honest partiality towards oneself and one’s compatriots, friends, and associates.

But social cooperation is only a nearly ultimate criterion. It is instrumental toward something more completely ultimate, something for which no further argument is possible, something taken as desirable by sheer intuition or emotion. That ultimately desirable “something” is individuals’ success in living, or fulfillment, or life appropriate to human potential. No single word is an adequate label; but when a single word is required, the traditional choice is “happiness,” understood in a suitably stretched sense.³

A UTILITARIAN CONCLUSION

Kirzner goes far toward justifying capitalist principles of ownership and distribution, as well as the system itself, by positive analysis combined with appeal to simple and widely accepted ethical intuitions. A person is entitled to what he himself creates or discovers⁴ and to what he obtains in a voluntary transaction from a previous owner whose title is undisputed. These, however, are fairly specific intuitions. When they are questioned, a social theorist relying on them should be able to defend them (conceivably modified in their details) by further positive analysis and by appeal to further and more nearly fundamental ethical intuitions. This further analysis will almost surely emphasize social cooperation and rely on a fundamental value judgment against misery and for happiness in a suitably stretched sense of the latter term.

Kirzner appears to adopt this utilitarian (indirect utilitarian) approach, which might also be called a comparative-institutions approach. ⁵ Alternatives to it are conceivable—just barely, in my judgment. Since Kirzner shows no sympathy for them, however, there is no need to review them here.

The ultimate basis of Kirzner’s conclusions about entitlements to capitalist wealth and profit must be that a society operating with different (more collectivist) principles would function less well than a society embodying broadly classical liberal principles. It would “function less well” in the sense of affording its individual members inferior prospects of the successful pursuit of happiness.

In conclusion, I quote one of several passages (1989, p. 177) suggesting Kirzner’s agreement with the position just sketched out:

A defense of capitalist justice has not declared it innocent of all moral flaws. It certainly has not declared all behaviour under historical capitalism to have been moral or even to have been just. A defense of capitalist justice suggests, however, that the system that has been so extraordinarily productive in raising the standards of human life need not be rejected out of hand on the grounds of innate unfairness. Moral improvement may be sought within the capitalist framework, without harboring a guilty sense of participation in an inevitably and fundamentally flawed form of social organization.

REFERENCES

Buchanan, James M. Freedom in Constitutional Contract. College Station: Texas A&M University Press, 1977.

Gray, John. Mill on Liberty: A Defence. London: Routledge, 1983.

———. Post-Liberalism: Studies in Political Thought. London and New York: Routledge, 1993.

Hardin, Garrett. “The Tragedy of the Commons.” 1968. In Population, Evolution, and Birth Control, 2^nd ed., edited by Hardin, 367—381. San Francisco: Freeman, 1969.

Hayek, FA. The Constitution of Liberty. Chicago: University of Chicago Press, 1960.

———. The Mirage of Social Justice. Vol. 2 of Law, Legislation, and Liberty.

Chicago: University of Chicago Press, 1976.

———. The Fatal Conceit. Edited by W.W. Bartley, III. Chicago: University of Chicago Press, 1989.

Hazlitt, Henry. The Foundations of Morality. Princeton, N.J.: D. Van Nostrand, 1964.

Kirzner, Israel M. Perception, Opportunity, and Profit. Chicago: University of Chicago Press, 1979.

———. Discovery and the Capitalist Process. Chicago: University of Chicago Press, 1985.

———. Discovery, Capitalism, and Distributive Justice. Oxford and New York:

Basil Blackwell, 1989.

———. “Commentary” on Martin Ricketts’s paper. In Austrian Economics: Tensions and New Directions, edited by Bruce J. Caldwell and Stephan Boehm, 85-102. Boston: Kluwer, 1992a.

———. The Meaning of Market Process. London and New York: Routledge, 1992b.

Nozick, Robert. Anarchy, State, and Utopia. New York: Basic Books, 1974.

Rawls, John. A Theory of Justice. Cambridge, Mass.: Belknap Press of Harvard University Press, 1971.

Ricketts, Martin. “Kirzner’s Theory of Entrepreneurship—A Critique.” In Austrian Economics: Tensions and New Directions, edited by Bruce J. Caldwell and Stephan Boehm, 67-84. Boston: Kluwer, 1992.

Schmidtz, David. The Limits of Government: An Essay on the Public Goods Argument. Boulder, Colo.: Westview Press, 1991.

Vining, Rutledge. On Appraising the Performance of an Economic System. New York: Cambridge University Press, 1984.

Yeager, Leland B. “Mises and His Critics on Ethics, Rights, and Law.” In The Meaning of Ludwig von Mises, edited by Jeffrey M. Herbener, 321-344. Nor-well, Mass., and Dordrecht, Netherlands: Kluwer, 1993. Reprinted here as chapter 25.

———. “Utility, Rights, and Contract: Some Reflections on Hayek’s Work.” In

The Political Economy of Freedom: Essays in Honor of F.A. Hayek, edited by Kurt R. Leube and Albert H. Zlabinger, 61-80. Munich and Vienna: Philosophia Verlag, 1985.

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*From Advances in Austrian Economics, vol. 2A, eds. Peter J. Boettke and Mario J. Rizzo (Greenwich, Conn.: JAI Press, 1995), 197-209.

¹See Hazlitt 1964 and, for discussion of Mises’s and Hayek’s writings, Yeager 1993 and Yeager 1985.

Kirzner does mention Mises’s utilitarianism (1989, pp. 63-64). Unfortunately, he seems to imply that Mises was little concerned with ethics and defended capitalism simply on the grounds that it delivers the goods.

²Hayek knows that cultural natural selection works through trial and error and through mere tendencies toward eventual decline of societies with inexpedient institutions and traditions—unless they reform themselves, perhaps by imitating more successful societies. He thereby recognizes that errors do occur and can persist. He also knows that deliberate attention, within a society, to how well or poorly its institutions are functioning plays a role in the evolutionary process. Still, the process as a whole is not directed by a single mind or committee, and not all the knowledge operating in it has been consciously articulated.

³Hayek (1989) appears to make survival, not happiness, the ultimate criterion. It does seem plausible that the processes of biological and cultural selection have operated through the survival or elimination of individuals and groups, not through their happiness or unhappiness. Again, though, we must distinguish between explanation and appraisal. In the context of appraisal, we need not decide between survival and happiness as ultimate criteria. Since social cooperation is prerequisite to both, it can serve as a surrrogate criterion. Only on a particularly rarefied level of philosophizing must we try to choose between rival ultimate criteria.

⁴Why is he entitled to his creation or discovery? A short answer, presumably, is that such a rule holds down disputes and fosters social cooperation and creativity better than any alternative would do.

Kirzner calls his view of entitlement a “finders-keepers ethic” (e.g., 1992, p. 222; 1989, pp. no—in, 166). While agreeing with the substance of his doctrine, I regret that label. In my own childhood experience, anyway, the full slogan was “finders keepers, losers weepers.” It conveyed a certain graspingness combined with a rather cynical unconcern for whoever had lost or been unfairly done out of some item. Kirzner evokes the second part of the slogan by mentioning the finder’s entitlement to a coin that someone else had lost in Times Square (1989, p. 153). I am confident, though, that Kirzner does not hold the attitude that the full slogan brings to my mind.

Since drafting this paper and this note in particular, I have seen Ricketts’s 1992 paper. Ricketts aptly calls Kirzner’s “finders-keepers ethic” a “graspers-keepers ethic” (p. 80). He also questions Kirzner’s position on the traveler who races ahead to appropriate the water-hole (pp. 76-78). Ricketts objects that Kirzner pays inadequate attention to the nature of property rights, even though his description of his imaginary situation suggests that the waterhole, instead of being simply “unheld,” is already regarded as a communal asset that individuals are entitled to use.

⁵This approach is far from an “act utilitarianism” that would require making each large or small decision according to the apparent merits of the individual case and without regard to further principles or to individual rights. Such a crude version of utilitarianism has by now, one hopes, become hardly more than a straw man beaten by superficial critics. What John Gray (1983) calls indirect utilitarianism recognizes the great utility of abiding by general principles and not practicing case-by-case expediency.