Bryan Caplan is one of my favourite bloggers. But I disagree with pretty much everything he says here:
IQ research [showing a positive correlation between IQ and earnings] seriously undermines the moral case for redistribution. One of our most basic moral intuitions is that people who succeed because of their personal ability deserve what they have. "He won because he was the best" has a lot more moral authority than "He won because he got lucky." Indeed, "He won because he was the best," is practically as compelling as "He won because he worked the hardest." IQ research confirms that capitalism is, as advertised, a meritocracy.
Think of it this way: Why does IQ research make leftists so angry? Well, the strongest argument for redistributing Olympic medals is that the winners cheated, and aren't really better athletes than the losers. Similarly, the strongest argument for redistributing wealth is that the winners cheated, and aren't really more economically productive than the losers. It isn't impossible to defend redistribution after you admit that people are rich because they are smart. But it is a lot harder.
My first gripe is that capitalism is only a meritocracy by accident. The price mechanism does not reward people for being intelligent. It rewards people whose skills are scarce. There is a difference, as Friedrich Hayek pointed out (Law Legislation and Liberty vol II p71-72):
[The function of the price system] is not so much to reward people for what they have done as to tell them what in their own as well as in general interest they ought to do. …To hold out a sufficient incentive for those movements which are required to maintain a market order, it will often be necessary that the return to people’s efforts do not correspond to recognizable merit…In a spontaneous order the question of whether or not someone has done the ‘right’ thing cannot always be a matter of merit.
Now, I'll grant that there's a positive correlation between being intelligent and having a scarce skill and therefore high earnings. But there are millions of counter-examples to this; if the link between IQ and earnings were strong and monotonic, the drinks would be on Bryan.
To oppose redistribution because the rich have higher IQs merely gives leftists the easy job of pointing to rich people with low IQs.
What's more, I don't share Bryan's intuition that "He won because he was the best" has a lot more moral authority than "He won because he got lucky." (I'll leave aside the question of whether anyone's intuitions matter.)
For one thing, the distinction's too sharp; a man is lucky to have high natural intelligence.
Also, a lottery winner, for me, is a paradigm case of someone who is entitled to their winnings*. He won a fair contest by fair means in which everyone had a chance, and which people were free to enter or not. And he's not insulting anyone by pretending that his good fortune carries any moral superiority. The winners in capitalism often cannot say this.
Nor do I find Bryan's analogy with Olympic medallists convincing. There are (at least) three relevant differences:
1. Olympic winners emerge from reasonable equality of opportunity. Winners in capitalism don't.
2. Olympic success is only one form of success, one form of competition. Those who are no good at sports can easily pursue other activities. Capitalism, by contrast, is more totalitarian, in that those who are not good at it cannot escape the need to earn a living; for most people, the alternative of living on their own small-holding does not exist.
3. In the Olympics, there's an obvious indisputable link between excellence and success. In capitalism, the link is weaker. Many can, and do, make money by exploiting monopolies, using office politics, profiting from unpriced externalities, or by pandering to stupidity. High IQ might give someone high earnings merely by making them good rent-seekers.
So, I don't think libertarianism rests on capitalism being a meritocracy at all. For me, the strong libertarian argument (I leave aside the question of just how strong it is) is that a person's earnings are the product of a free agreement between him and others, and that the state has no business intefering.
As Mae West said: "goodness has nothing to do with it."
* Note: please distinguish between desert and entitlement.