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https://www.nybooks.com/articles/1982/03/04/just-deserts/
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Peter Bauer is one of the most distinguished development economists in 
the world, and undoubtedly the foremost conservative one. His 
pioneering study of the rubber industry—published in 1948—established 
him as an applied economist of exceptional skill. He has written on a vast 
range of topics, including the market mechanism, the nature of West 
African trade, abuses of planning, and occupational statistics. There are 
few branches of development economics in which Bauer has not had 
something interesting and important to say. And he has gone beyond 
development economics into the study of comparative economic systems, 
international economic relations, and general political economy. 
 
This book, consisting of a collection of Bauer’s essays (most of which 
were published elsewhere earlier), gives an excellent account of his main 
theses on development policy and international relations. It also presents 
his approach to economic equality and inequality in general, and places 
his discussions of development against the background of some of the 
broadest issues of political economy. It is an exciting book. It is also 
extremely provocative—Bauer is no compromiser—and I have to confess 
to being suitably provoked. I shall argue that Bauer’s approach—in spite 
of its power and appeal—is fundamentally flawed, and that his analysis 
cannot bear the weight of the conclusions that he rests on it. 
 
Bauer sees himself as standing very much against the current. The 
“economic delusion” he refers to in the title of the book is, he argues, 
shared widely. “The poor are seen,” he complains, “as passive but 
virtuous, the rich as active but wicked.” 
 
This picture is painted by certain groups who regard themselves 
as standing apart from rich and poor, and perhaps as above both. 
They are, in the main, politicians, social reformers, welfare 
administrators, social scientists, writers, artists, media people, 
churchmen and even entertainers. As noted in the Introduction, 
they now form much of what was once called the political nation. 
 
It is certainly true that the views that Bauer attacks are widely shared. But 
Bauer isn’t particularly isolated himself. His arguments develop and 
reinforce deep-seated conservative beliefs. Also, as it happens, both in 
Bauer’s own country—Britain—and that of his publisher—the United 
States—the governments in power share Bauer’s economic outlook, even 
though that outlook is rarely defended as fluently and cogently as Bauer 
defends it. Bauer is, in fact, an eloquent, original, and influential member 
of the powerful conservative tradition in political economy. He may be 
facing a multitude of opponents, but he is also leading a large group 
himself. It is best to get this straight if his book is to be seen in 
perspective. If Bauer sees himself as David facing Goliath, then David 
has come to the battleground on the shoulders of a second Goliath—one 
that rules much of the world. Bauer’s arguments not only attack widely 
held views; they also provide justification for some of the most 
entrenched beliefs underlying official policy in such countries as the 
United States and Britain. 
 
Two different types of reasoning can be found in Bauer’s book. They 
may be called—for want of better terms—“direct” and “indirect.” Direct 
arguments take the form of denying or disputing the substance of the 
claims—empirical or otherwise—of the opponents. Indirect arguments 
debunk opponents by showing that they stand to gain from the acceptance 
of the “delusions” they spread. The latter method of arguing is more 
common in law courts than in academic discussions, but Bauer is cogent 
in his defense of it. 
 
It is both understandable and legitimate to ask how it comes about 
that leading academics or other influential people canvass plainly 
insubstantial notions which must affect both the intellectual scene 
and the course of events. Indeed, even if these ideas are successfully 
refuted, some doubts are likely to remain in the minds of readers, 
unless the critic can suggest some acceptable reasons why these 
ideas have come to be advanced. 
 
Bauer then proceeds to argue that “the emergence and survival of most of 
the transgressions reviewed in this book” serve the interests of those who 
champion them, whether they are planners, economists, or politicians. 
“Almost all of these [transgressions] promote or underpin policies which 
enhance the role and power of groups which comprise a major part of the 
contemporary political nation,” and “the acceptance of these 
transgressions therefore serves their emotional, political and material 
interests.” 
 
Bauer’s indirect arguments might look plausible, adding force to his main 
theses (indeed they are part of his main theses), but they are, in fact, 
inconclusive. First, they point to a very broad and rather vague 
congruence of the interests with the views of the people he attacks. In 
order to carry conviction, linking opinions with personal advantage has to 
be done much more precisely, discriminating between alternative 
hypotheses and examining the available evidence in detail, to refute some 
hypotheses and confirm others. Bauer, whose standards of empirical 
economics are exacting, is astonishingly tolerant of his conjectures about 
the sociological and psychological bases of economic and political 
theorizing. 
 
Second, the indirect arguments essentially depend on the direct arguments, 
and if the opposing views cannot be rejected on direct evidence, they 
cannot be rejected on the grounds that these views coincide with the 
interests of their proponents. This point is not, in fact, in conflict with 
Bauer’s own case for pursuing indirect arguments, which are put forward 
essentially as supplementing direct arguments. The need to explain why 
“leading academics or other influential people canvass plainly 
insubstantial notions” arises only when these notions are first shown to be 
“plainly insubstantial.” It is, for these reasons, not unfair to Bauer’s 
approach to concentrate on the direct arguments he provides, reserving 
the position on the indirect arguments—to be taken up only if the direct 
arguments win. 
 
Bauer’s rejection of egalitarianism as an “appropriate” goal is central to 
the rest of his approach, and it is best for us to begin with his case for 
rejection, as Bauer himself does. Although he moves freely from one 
argument to another, one can find four distinct—and basically 
independent—arguments against egalitarianism in his attack on “the 
unholy grail of economic equality.” First, he argues that most economic 
differences are deserved. They are, he writes, “largely the result of 
people’s capacities and motivations.” “…It is by no means obvious why it 
should be unjust that those who produce more should enjoy higher 
incomes.” 
 
Second, he implies that there is a procedural justification for income 
differences, since “in an open society income differences normally reflect 
the operation of voluntary arrangements.” “Incomes, including those of 
the relatively prosperous or the owners of property, are not taken from 
other people. Normally they are produced by their recipients and the 
resources they own; they are not misappropriated from others; they do not 
deprive other people of what they have had or might have had.” 
 
Third, there is an instrumental justification of income differences, based 
on their consequences. 
 
Except perhaps over very short periods, redistributive policies are 
much more likely to depress living standards of the poor than to raise 
them. The extensive politicization brought about by large-scale 
redistribution diverts people’s energies and ambitions from productive 
economic activity to politics and public administration. It also 
encourages attempts to benefit from politically-organised 
redistribution, orto escape its consequences. An even more evident 
result is that these policies systematically transfer resources from 
people who are economically productive to others who are less so. 
 
Fourth, he argues that “there is an underlying contradiction in 
egalitarianism in open societies.” 
 
In an open and free society, political action which deliberately aimed 
to minimize, or even remove, economic differences (i.e. differences in 
income and wealth) would entail such extensive coercion that the 
society would cease to be open and free. The successful pursuit of the 
unholy grail of economic equality would exchange the promised 
reduction or removal of differences in income and wealth for much 
greater actual inequality of power between rulers and subjects. 
 
The instrumental argument does not, in fact, provide grounds for rejecting 
egalitarianism as an objective of economic policy. First, Bauer heavily 
overstates the conflict between the pursuit of equality and the pursuit of 
other objectives, such as overall prosperity or diminishing poverty. 
Examples of relatively faster growth being accompanied by more equal 
distribution of incomes can be found not merely in many socialist 
economies, but also in several capitalist ones, such as South Korea, Hong 
Kong, Taiwan, and Singapore (which are favorably mentioned by Bauer 
in other contexts). Second, to the extent that such conflicts do exist, they 
cannot on their own undermine the view that “egalitarianism is an 
appropriate goal,” but only the view—not widely held—that the goal of 
egalitarianism does not conflict with other goals. 
 
The same two objections apply to the “contradiction” argument. First, the 
conflicts are less severe than Bauer claims. Countries pursuing egalitarian 
policies, varying from Sweden to Sri Lanka, are not noticeably more 
coercive than other countries with comparable income levels, or similar 
social and cultural histories. On the other hand, many 
countries without policies emphasizing equality have exceptionally bad 
records on coercion, e.g., several in Latin America. Second, even if such 
conflicts existed and were very general, they would indicate only that 
economic egalitarianism can conflict with other types of equality, and not 
that economic egalitarianism is not “an appropriate goal.” 
 
In contrast, the argument that differences are deserved and the procedural 
justification of inequality contradict the goal of egalitarianism itself. The 
goal of just desert—as defined by Bauer—requires that those who 
“produce” more should enjoy higher incomes. This amounts to a direct 
denial of the objective of egalitarianism. Similarly, the procedural 
justification can be so formulated as to be inconsistent with any system 
directed toward social goals (including the pursuit of egalitarian goals), 
demanding instead that any outcome that emerges from right 
procedures—such as “voluntary arrangements”—be accepted. However, 
unlike Robert Nozick, Peter Bauer does not characterize a procedural 
view systematically enough to be able to rely on it as the basis for a moral 
argument. Further, unlike Nozick, he does not view the division of 
income as being justified by freedom of contract in production and 
exchange; his views on this question derive rather from a physical 
description of who “produces” what. In particular he holds that the 
incomes of “those of the relatively prosperous or the owners of property” 
are “normally…produced by their recipients and the resources they own.” 
Thus both the argument about who is deserving and the procedural 
argument ultimately turn on Bauer’s description of the process of 
production: that is, a rich person produces correspondingly more than a 
poor person. This description plays a crucial part in Bauer’s economic 
analysis—both of inequality within a country and of inequality across 
national boundaries, including the claims of the so-called third world. I 
shall call Bauer’s position here the “personal production view.” 
 
It is quite plausible to think that the personal production view, if correct, 
can lead to a moral case for inequality. If, say, person A has 
produced—quite unaided—some food or some medicine, and persons A 
and B need that food or that medicine equally, then the case for A rather 
than B having the food or the medicine might well be seen to be strong. 
Of course, even with such a simple case of unaided production, this 
judgment may not have irresistible force, and it is quite plausible to 
entertain this value without giving it invariable priority over other 
objectives. If, for instance, person A has produced the food or the 
medicine (as in the previous example), but has little need for it, while B, 
who is hungry, or C, who is ill, needs them desperately, then—consistent 
with the earlier judgment—A’s relative claim on the food or the medicine 
can be seen as morally weakened. But it is difficult to deny that if the 
personal production view were correct in a particular case, it can be the 
basis of a prima facie argument for Bauer’s approach. 
 
However, the personal production view is difficult to sustain in cases of 
interdependent production, i.e., in almost all the usual cases of production. 
Production is based on the joint use of different resources, possibly 
provided by different people, and it is not in general possible to separate 
out who—or even which resource—produced how much of the total 
output. There is no obvious way of deciding that “this much” of the 
output is owing to labor, “that much” to raw materials, “that much” to 
machinery, and so on. In economic theory, a common method of 
attribution is according to “marginal product,” i.e., the extra output that 
one incremental unit of one resource will produce given the amounts of 
other resources. This method of accounting is internally consistent only 
under some special assumptions, and the actual earning rates of resource 
owners will equal the corresponding marginal products only under some 
further special assumptions. 
 
But even when all these assumptions have been made—quite a tall 
order—it is still arbitrary to assert that each resource’s earnings reflect the 
overall contribution made by that resource to the total output. There is 
nothing in the marginalist logic that establishes such an identification. 
Marginal product accounting, when consistent, is useful for deciding how 
to use additional resources so as to maximize profit, but it does not 
“show” which resource has “produced” how much of the total output. The 
alleged fact is, thus, a fiction, and while it might appear to be a 
convenient fiction, it is more convenient for some than for others. 
 
Furthermore, when incomes generated by the production 
of different goods are compared, relative incomes depend on relative 
prices of the products, and this introduces an additional element of 
arbitrariness in the personal production view. You and I may continue to 
produce the same two goods in unchanged amounts in exactly the same 
way, but a change in the relative prices of our respective products (caused, 
say, by changing demand conditions having to do with the functioning of 
the rest of the economy) can make our relative incomes change without 
any change of anything that you and I are, in fact, doing or producing. 
Finally, there is the need to distinguish between what a person produces 
and what is produced by resources that he happens to own. The moral 
appeal of giving more—in Bauer’s words—to “those who are more 
productive and contribute more to output” does not readily translate into 
giving more to “those who own more productive resources which 
contribute more to output.” 
 
The personal production view thus confounds the marginal impact with 
total contribution, glosses over the issues of relative prices, and equates 
“being more productive” with “owning more productive resources.” 
These ambiguities are crucial to its moral appeal. The personal 
production view, it must be concluded,is richer in powerful rhetoric than 
in substance. 
 
The same issues recur—among others—when Bauer moves from 
economic equality in general to the question of international distribution 
and the relation between the West and the third world. “The poorest, 
whether entire societies or the poorest groups within one society, are 
unlikely to possess the aptitudes and motivations for economic 
achievement to the same extent as those who are more prosperous.” “In 
fact, with a few clearly definable exceptions, which do not apply to the 
relations between the West and the Third World, incomes whether of the 
rich or of the poor are earned by their recipients.” 
 
This again overlooks the arbitrariness and ambiguities of the personal 
production view, in this case applied internationally. An Indian barber or 
circus performer may not be producing any less than a British barber or 
circus performer—just the opposite if I am any judge—but will certainly 
earn a great deal less. The role of relative prices is crucial in this 
distinction. Relative prices play a major part also in the international 
distribution of benefits. Some of the arbitrariness of price-based 
accounting of productivity has been brought out sharply in recent years 
by sudden changes in the relative price of oil and the consequent changes 
in the distribution of income between oil-producing countries and others. 
The notion of being “more productive” is more complex than Bauer 
makes it sound. The smaller earnings and the lower “productivity” of the 
Indian barber and circus performer, compared with those of their British 
counterparts, need not, in fact, reflect only failure of what Bauer calls 
“aptitudes and motivations for economic achievement.” They may reflect 
simply the lower prices they get for haircuts and circus performances. 
 
It is, of course, true that possession is nine points of the law. It is Bauer’s 
attempt at moral justification of possession that fails. Aside from the 
ambiguities and arbitrariness of the personal production view on which 
Bauer relies, he also fails to examine the claims of different approaches 
that would focus on variables other than production. Bauer is largely 
silent about utilitarian, Marxian, Rawlsian, and other moral arguments. 
Even within the production perspective, he does not show why “owning” 
is a productive activity. He does not explain why the benefit from 
favorable personal circumstances (e.g., inheritance) should be one’s 
legitimate due, while he treats it as if it were. 
 
He even closes the door on a procedural historical justification in line 
with “entitlement theories” (e.g., Robert Nozick’s attempt to show what 
kinds of acquisition and inheritance have legitimacy) by firmly asserting 
that “except over very short periods, historical wrongs cannot be put 
right.” It remains, therefore, a mystery why one’s birth in a richer 
country—with the favorable circumstances of more resources, greater 
opportunity of acquiring skills, and the higher price of unskilled 
labor—should give one such an effective moral claim to incomes higher 
than those of others who are less fortunate. 
 
Where Peter Bauer is on much firmer ground is in his discussion of the 
effects of international aid, which provides the basis for his instrumental 
criticism of such aid. He shows the relatively limited role that aid has 
played historically in fostering economic development. He gives evidence 
that such aid often does not go to the poor and frequently does not even 
help in relieving poverty. He points out that “aid increases the power, 
resources and patronage of governments compared with the rest of the 
society and therefore their power over it.” Bauer’s political and economic 
analysis powerfully illuminates various aspects of international economic 
relations that are often ignored. 
 
All this could have formed the basis of an undogmatic and balanced 
reappraisal of the relations between rich and poor countries. But despite 
several sensible suggestions for policy, such a reappraisal does not, alas, 
take place. I believe there are two reasons why it does not. First, Bauer is 
not content with throwing light on unexplored aspects of aid and 
international relations; he wants to draw his policy conclusions 
exclusively from these aspects, ignoring many of the other things that we 
do know. Many of the countries whose economic achievements Bauer 
praises (e.g., South Korea and Taiwan) have received a great deal of 
aid—some of them appearing at the top of the list of recipients, if aid is 
measured on a per capita basis. He also overlooks the fact that some of 
the countries with the fastest growth performances have policies 
involving deep government intervention in economic life. This is true not 
only of communist countries, e.g., China, Yugoslavia, etc., but also of 
some with private-ownership economies. The government of South Korea, 
for example, with its nationalized commercial banks and financial 
institutions, has, according to some estimates, controlled about two-thirds 
of the investment resources of the economy, and has varied the interest 
rates charged according to the field of investment—from eight percent to 
thirty-three percent during one period—in order to reflect government 
priorities. 
 
Second, in drawing policy conclusions from his empirical analysis, Peter 
Bauer emerges as a prisoner of his extremely limited moral outlook, 
based on the noninstrumental arguments discussed earlier, e.g., the 
argument that economic differences are deserved. Multilateral aid is bad 
because—among other things—“international aid organizations are not 
allowed to take into account the political interests of the donors”—a 
statement that has, in any case, more de jure validity than de 
facto accuracy. “Bilateral grants should be given for only limited 
periods…. The donors should also make it clear that these transfers do 
not represent restitution for alleged misconduct, nor an instrument for 
global redistribution, nor for securing specified rates of growth or levels 
of income.” “…aid should not go to governments whose external policies 
conflict with the interests of the donors.” 
 
All this would be acceptable if no moral claims existed other than those 
that follow from ownership rights. Of course, that does indeed seem to be 
Bauer’s belief, but I have already discussed why his defense of that belief 
involves arbitrariness, ambiguities, and a failure to examine alternatives. 
Bauer’s policy prescriptions (despite several sensible remarks arising 
from his empirical studies) are geared to his narrow and parochial 
principles. A grand program of challenging worldwide “economic 
delusion” and providing a more sensible approach than the so-called 
“new international economic order” seems to have got stuck in the mud 
of the writer’s own back garden. 
 
I have concentrated in this review only on some of the principal themes 
of Bauer’s absorbing book. There are other important issues that he takes 
up. Chapter 3, “The Population Explosion: Myths and Realities,” is 
probably the most perceptive and clear-headed analysis of this confusing 
problem that can be found in the literature. He also makes a powerful 
critique of “commodity stabilization arrangements” (Chapter 8). Part 
Three of the book, dealing with “the state of economics,” includes essays 
that have points of interest, but are more heterogeneous and of uneven 
depth, and only loosely related to the main themes of the book. 
 
I need hardly add that for reasons I have already discussed, this is an 
extremely important work. It applies and extends a view that is widely 
held. It presents the ideas and analyses of one of the major and most 
creative conservative thinkers on political economy, covering some of the 
central policy issues in the modern world. The book is both illuminating 
and provocative. The reader is forced to ask himself if he accepts Bauer’s 
reasoning, and if not, why not. I have tried in this reviewto indicate why 
not.