Introduction

In his 1972 Nobel lecture, Kenneth Arrow observed that “general competitive equilibrium above all teaches us the extent to which a social allocation of resources can be achieved by independent private decisions coordinated through the market” (1973, p. 228). He then added: “But, as has been stressed, there is nothing in the process which guarantees that the distribution be just.” This led him to conclude, “thus even under the assumptions most favorable to decentralization of decision making, there is an irreducible need for a social or collective choice on

distribution.”

In The Limits of Organization (1974), Arrow stated: “With regard to distributive justice,… it is perfectly possible to defend the proposition that through one action or another (and we think here usually of taxation and redistribution), we can change the distribution of income as we wish…. But of course we are here taking away from one and giving to another. We have a straight conflict situation, not one that can be resolved by … jointly improving the welfare of each individual” (1974, p. 24). This observation squarely placed redistribution via government in the class of social choices for which (he had already argued) “criteria we associate with ‘distributive justice’ have to be called into play” (p. 20). This view has been echoed elsewhere, in, for example, Edmund Phelps's entry on “distributive justice” for The New Palgrave: A Dictionary of Economics: “Distributive justice is largely about redistributive taxation and subsidies” (1987, p. 886).