We're faced then with two intriguing mysteries. Why did the Nozick of 1975 confuse capital with human capital? And why did Nozick by 1989 feel the need to disavow the Nozick of 1975? The key, I think, is recognizing the two mysteries as twin expressions of a single, primal, human fallibility: the need to attribute success to one's own moral substance, failure to sheer misfortune. The effectiveness of the Wilt Chamberlain example, after all, is best measured by how readily you identify with Wilt Chamberlain. Anarchy is nothing if not a tour-de-force, an advertisement not just for libertarianism but for the sinuous intelligence required to put over so peculiar a thought experiment. In the early '70s, Nozick—and this is audible in the writing—clearly identified with Wilt: He believed his talents could only be flattered by a free market in high value-add labor. By the late '80s, in a world gone gaga for Gordon Gekko and Esprit, he was no longer quite so sure.
Even in 1975, it took a pretty narrow view of history to think all capital is human capital, and that philosophy professors, even the especially bright ones, would thrive in the free market. But there was a historical reason for Nozick's belief: the magnificent sieve. Harvard's enrollment prior to World War II was 3,300; after the war, it was 5,300, 4,000 of whom were veterans. The GI Bill was on its way to investing more in education grants, business loans, and home loans than all previous New Deal programs combined. By 1954, with the Cold War in full swing, the U.S. government was spending 20 times what it had spent on research before the war. "Some universities," C. Wright Mills could write in the mid-'50s, "are financial branches of the military establishment." In the postwar decades, the American university grew in enrollment, budget and prestige, thanks to a substantial transfer of wealth from the private economy, under the rubric of "military Keynesianism." As a tentacle of the military-industrial octopus, academia finally lost its last remnant of colonial gentility.
At the same time the university boomed, marginal tax rates for high earners stood as high as 90 percent. This collapsed the so-called L-curve, the graphic depiction of wealth distribution in the United States. The L-curve lay at its flattest in 1970, just as Nozick was sitting down to write Anarchy. In 1970, there were nearly 500,000 employed academics, and their relative income stood at an all-time high. To the extent anyone could believe mental talent, human capital, and capital were indistinguishable, it was thanks to the greatest market distortion in the history of industrial capitalism; and because for 40 years, thanks to this distortion, talent had not been forced to compete with the old "captains of industry," with the financiers and the CEOs.
Buccaneering entrepreneurs, boom-and-bust markets, risk capital—these conveniently disappeared from Nozick's argument because they'd all but disappeared from capitalism. In a world in which J.P. Morgan and Cornelius Vanderbilt have been rendered obsolete, reduced to historical curios, to a funny old-style man, imprisoned in gilt frames, the professionals—the scientists, engineers, professors, lawyers and doctors—correspondingly rise in both power and esteem. And in a world in which the professions are gatekept by universities, which in turn select students based on their measured intelligence, the idea that talent is mental talent, and mental talent is, not only capital, but the only capital, becomes easier and easier for a humanities professor to put across. Hence the terminal irony of Anarchy: Its author's audible smugness in favor of libertarianism was underwritten by a most un-libertarian arrangement—i.e., the postwar social compact of high marginal taxation and massive transfers of private wealth in the name of the very "public good" Nozick decried as nonexistent.
And the screw takes one last turn: By allowing for the enormous rise in (relative) income and prestige of the upper white collar professions, Keynesianism created the very blind spot by which professionals turned against Keynesianism. Charging high fees as defended by their cartels, cartels defended in turn by universities, universities in turn made powerful by the military state, many upper-white-collar professionals convinced themselves their pre-eminence was not an accident of history or the product of negotiated protections from the marketplace but the result of their own unique mental talents fetching high prices in a free market for labor. Just this cocktail of vanity and delusion helped Nozick edge out Rawls in the marketplace of ideas, making Anarchy a surprise best-seller, it helped make Ronald Reagan president five years later. So it was the public good that killed off the public good.
Since 1970, the guild power of lawyers, doctors, engineers, and, yes, philosophy professors has nothing but attenuated. To take only the most pitiful example, medical doctors have evolved over this period from fee-for-service professionals totally in control of their own workplace to salaried body mechanics subject to the relentless cost-cutting mandate of a corporate employer. They've gone from being Marcus Welby—a living monument to public service through private practice—to being, as one comprehensive study put it, harried "middle management." Who can argue with a straight face that a doctor in 2011 has more liberty than his counterpart in 1970? What any good liberal Democrat with an ounce of vestigial self-respect would have said to Nozick in 1970—"Sure, Bob, but we both know what your liberty means. It means power will once again mean money, and money will be at liberty to flow to the top"—in fact happened. The irony is that as capital once again concentrates as nothing more than capital (i.e., as the immense skim of the financiers), the Nozickian illusion (that capital is human capital and human capital is the only capital) gets harder and harder to sustain.
Sustained it is, though. Just as Nozick would have us tax every dollar as if it were earned by a seven-foot demigod, apologists for laissez-faire would have us treat all outsize compensation as if it were earned by a tech revolutionary or the value-investing equivalent of Mozart (as opposed to, say, this guy, this guy, this guy, or this guy). It turns out the Wilt Chamberlain example is all but unkillable; only it might better be called the Steve Jobs example, or the Warren Buffett* example. The idea that supernormal compensation is fit reward for supernormal talent is the ideological superglue of neoliberalism, holding firm since the 1980s. It's no wonder that in the aftermath of the housing bust, with the glue showing signs of decay—with Madoff and "Government Sachs" displacing Jobs and Buffett in the headlines—"liberty" made its comeback. When the facts go against you, resort to "values." When values go against you, resort to the mother of all values. When the mother of all values swoons, reach deep into the public purse with one hand, and with the other beat the public senseless with your dog-eared copy of Atlas Shrugged.
Calling yourself a libertarian is another way of saying you believe power should be held continuously answerable to the individual's capacity for creativity and free choice. By that standard, Thomas Jefferson, John Ruskin, George Orwell, Isaiah Berlin, Noam Chomsky, Michel Foucault, and even John Maynard Keynes are libertarians. (Orwell: "The real division is not between conservatives and revolutionaries but between authoritarians and libertarians." Keynes: "But above all, individualism … is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.") Every thinking person is to some degree a libertarian, and it is this part of all of us that is bullied or manipulated when liberty is invoked to silence our doubts about the free market. The ploy is to take libertarianism as Orwell meant it and confuse it with libertarianism as Hayek meant it; to take a faith in the individual as an irreducible unit of moral worth, and turn it into a weapon in favor of predation.