Three regulatory preferences

​All functioning societies are governed by a set of rules defining the boundaries of appropriate behaviour, though the rules emanate from many different sources. Within the framework of private law, individuals are largely self-governing subject to the basic principles of the law of obligations (contract, property, and tort); the law has nothing to say about whether everyone should have the same amount of stuff or even the same amount of social standing or economic power.  This creates a lot of freedom, but also produces a lot of inequality because there are no rules about how to share stuff out fairly to ensure that nobody has more than others.

No doubt, wherever the right of private property exists, there must and will be inequalities of fortune...And since it is self-evident that, unless all things are held in common, some persons must have more property than others, it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.

Coppage v Kansas 236 U.S. 1 (1915)

This is due to a preference for having as few rules as possible. For the most part, people should just be left to get on with it.

Alas, this does tend to lead to a situation where some people end up richer than others. And most people would consider it to be completely unacceptable that there should be anybody out there with more money than they have. Where's the fairness in that?

The question then is: how much inequality is acceptable? It is impossible for everyone to have the same amount of stuff down to the last penny, but different people have a different level of tolerance for how much richer they can get before it starts becoming embarrassing and they feel that Something ought to be done to start equalising everything. But who exactly should do Something, and what, exactly, should be done? If prosperity is the goal, would private ordering superior to legislative fiat in achieving prosperity for all?

​Free markets may well be better than state regulation in terms of achieving efficiency and wealth maximization, but if the goal is to create a society where everyone has the same amount of stuff then nobody can realistically look to capitalist markets to achieve that: capitalism produces quite uneven and dispersed results.

The question must then turn to the interaction between market efficiency and social equality. To a large extent the two goals are symbiotic and support each other so that a trade-off between them is not required. However, given that efficient markets are indifferent as to wealth distribution, it cannot be assumed that efficiency will usually, or even often, produce distributive equality.

​There are three possible regulatory responses. 

1. The equality preference
First, the proposition that the priority is to promote economic equality wherever possible. 

2. The open-ended preference
Second, the proposition that the aim is to strike some kind of balance between conflicting goals, preferring neither efficiency nor equality but making case by case assessments depending on the context.   

3. Free markets
Of course, no market is perfectly free or perfectly competitive but freedom may nevertheless stand as a policy goal to aim for and prioritise. If efficiency and justice often support each other, the policy preference should favour economic freedom and free market transactions.