Inheritance, Luck, and Formal Equality of Opportunity

An inheritance is a wealth transfer that has not been earned by the recipient. It is undeserved. But it is nevertheless a right. This chapter assesses how such rights can be defeated through a proper understanding of markets and their relation to luck, desert, and equality of opportunity. Frank Knight once argued that the luck element is so large in our modern markets that capacity and effort may count for nothing in the distribution of market rewards. This is not necessarily a problem. Yet there is a key difference between the luck of inheriting and the luck behind the price system. The cumulative effect of the luck element behind the price mechanism will make most people better off. The problem of inheritance, on the other hand, is that it negates formal equality of opportunity, thus destroying the conditions by which everyone may try their luck in an open market competition. To the extent that there is too much inequality, driven by the cumulative effect of intergeneration transmission of wealth, then markets may no longer be “open.”