Chris Dillow usefully collects a number of pertinent Hayek quotes regarding the debate about income and desert.
I think it's useful to clearly reiterate what Hayek's argument about the connection between distibution and overall moral desert really is. I think this is basically the argument:
Gather the names of everyone inhabiting a certain social order (pretend that there is some non-arbitrary way to draw the boundaries between orders or societies). On the first list, List A, order the names according to some standard of overall moral virtue or praiseworthiness, from most virtuous to least. On the second list, List B, order the names according to last year's income, from high to low.
If you pick a name at random, there will not be an especially tight correlation between its place on List A and List B.
Income is determined for the most part by the supply and demand for different forms of labor, and the supply and demand for capital (which determines rates of return for those with savings or investments), and an individual's overall moral merit has almost nothing to do with the overall supply and demand for labor and other forms of capital. If computer programmers are in short supply, for example, they will command high wages, whether or not they are saints or sinners.
That's the argument.
Now, Hayek's larger argument about social justice is that it is incoherent to look at List B and criticize it for failing to map onto List A, or to map onto any other list ordered according to whatever normative standard you like as long as the general system of rules (both formal and informal) is desirable.
And we should
“. . . regard as the most desirable order of society one which we would choose if we knew that our initial position in it would be decided purely by chance.”
“The Good Society is one in which the chances of anyone selected at random are likely to be as great as possible.” [LLL, vol. 2, p. 132]
Now, crucially, there is nothing in this argument that says that Gary (picking a name from list B) did not deserve $50,00 in 2004. The argument is that it is incoherent to say that Gary deserves his ranking on List B, which is determined by Gary's income, which happens to be $50,000, and the number of people who brought in a greater income.
Suppose Gary inhabits a fairly Good Society in Hayek's terms. Now it turns out that Gary entered into an agreement with the Institute for the Study of Distributive Justice that says that Gary will be paid $50,000 over the course of 2004 if he completes a number of tasks to the satisfaction of the ISDJ. And he did complete these tasks to the satisfaction of the ISDJ. So Gary straightforwardly deserves, has a genuine moral claim on, exactly $50,000 from the ISDJ.
And the ISDJ pays, as justice requires. Now, Gary's $50,000 earns him a certain place on List B. Suppose Gary is on line 1000 of List B (it's a very small society). Does he deserve to be on line 1000? Hayek's argument tells us that this is an ill-formed question; it contains a category error. As Will Munny so wisely observed in a different context, “Deserve's got nothin' to do with it.”
If the winds of supply and demand throughout the economy had blown differently, Gary might have moved up or down List B, and this obviously has nothing to do with anything Gary can take credit for. So there is something pretty contingent and normatively arbitrary about his rank on List B. A butterfly spits in a pitcher of lemonade and he moves up to line 1001. Whatever. Nonetheless, Gary really and truly morally deserves $50,000. But not from society, which makes no sense. Gary has no claim against you and your sister. He has a claim against the ISDJ, with whom he entered into an agreement within the context of the rules of a pretty Good Society. They owe him, because that's the amount they agreed on, and Gary came through. He has it — the agreed-upon amount — coming.