Property in the hands of labor is freedom.
Labor in the hands of property is slavery.
–Dmitri Kleiner
From the earliest days of Distributism, distributists have exhibited a certain disinterest in economics. This is a rather odd stance for the adherents of an economic theory. Distributism was defended generally on moral and social grounds, and only occasionally on economic grounds. Both Chesterton and Belloc were aware of this problem, but neither was willing to tackle the job in any formal way. Belloc did produce a brief volume, Economics for Helen, but even the title indicates his disdain for the subject; “Helen” was taken to be an inquisitive high-school student, and all that she needed to know could be expressed in a brief treatment. And while Belloc’s volume was correct as far as it went, it did not go far enough to establish Distributism as an economic theory, and did less to establish a program for advancing the proprietary state. Hence, Distributism remained “a creed without a dogma, evoking sympathy but lacking support.”1 The distributists never really established a school of economics nor proposed a program of economic research, despite the work or some fine economists such as John Ryan, E. F. Schumacher, Heinrich Pesch, and others.
This was particularly unfortunate because the distributists’ main antagonists, the Fabian Socialists, insisted on first-class economic research. Among those who recognized the need for the reform of the Capitalist system, the Fabians had a great advantage because they could put their case convincingly in economic terms. Distributists were able to produce first-class critiques of both Capitalism and Socialism, but they tended to be somewhat vague about their own economics. The Fabians had no such problems, and without a “working” alternative,” the tended to carry the day against the distributists. They won a battle we refused to fight.
Further, there is a certain amount of resignation among distributists, the feeling that they are facing a system that “works,” and that our major task is to add a moral dimension to an already fully functioning system. For example, Daniel M. Bell writes, “The empirical question put to capitalism cannot be ‘does it work?’ The obvious answer is “yes.” 2 At first glance, Prof. Bell’s statement would appear to be true: we do see a working system around us, however imperfectly. However, the working system we see is not capitalism, but Keynesianism. The best one can say from the empirical evidence is that Keynesian Capitalism works. But to say this is to already destroy the argument of the capitalists, or at least of the pure capitalists. If capitalism is a system that requires massive government intervention to balance supply and demand, then it’s purely economic claims must be called into question.
Yet the fact that capitalism fails and Keynesianism works is itself somewhat perplexing. We would expect the reverse to be true. And here we come to the real tragedy of the Distributist failure to confront the economic questions in economic terms, because Distributist analysis provides us with the economic and intellectual tools to understand the manifest failure of the one and the apparent success of the other. Further, Distributism provides the tools to understand the current crises in Keynesian economies and to point the way forward. Nor do Distributists need to confine their remarks to the merely speculative realm; on the contrary, we can demonstrate our beliefs with systems that are on the ground and working successfully, and have been doing so for at least 50 years. And finally, we can note that nearly all of modern economics, whether neoclassical, Keynesian, Socialist or Austrian, is built on a mistake about science; in the attempt to make their discipline “scientific” in the mold of physics, they abandoned the only thing that can make a humane science “scientific,” namely the principle of justice and particularly distributive justice. Thus, distributism can provide what the world now lacks: both a theoretical framework and practical examples. Capitalism can provide neither and Keynesianism is in crises. My thesis in this article is that if one wishes to be an economic scientist, one will have to be a Distributist, or something very like it.
Does Capitalism Work?
The people who argue that “capitalism works” are the same people who argue that we should have less government interference in the market. Now, I am all for less government; however, the plain fact of the matter is that capitalism cannot function without this interference; capitalism relies on an expanded state to balance aggregate supply and demand. Consider this fact: in the period from 1853 to 1953, the economy was in recession or depression fully 40% of the time. Since 1953, that is, since the economy became fully Keynesian, the economy has been in recession only 15% of the time.3 Moreover, the pre-war recessions were, on average, twice as deep and twice as long as the post-war ones.
There has been an on-going attempt for the last 30 years to return the economy to its pre-Keynesian status. Since the rise of Margaret Thatcher in 1979 and Ronald Reagan in 1980, the political rhetoric has been about “free markets,” “lower taxes,” “less government interference,” etc. Both Reagan and Thatcher took Fredrick von Hayek as their economic mentor. But the more “Hayekian” the economic rhetoric became, the more Keynesian the economy has actually become; the unintended consequence of Hayek’s policies have been the opposite of what Hayek wanted: larger governments, greater debts, more centralized economic power, and so forth. Keynes’s policies are certainly, as Hayek claimed, a “road to serfdom,” but Hayek’s policies have turned out to be a super-highway to that same dismal destination. Nor is this true just for the United States and Britain. Since the Reagan administration, the World Bank has forced Hayek’s economic policies on all the developing economies, and the results have been uniformly dismal. Indeed, the theories of Hayek have been tested just as much as have the theories of Karl Marx, and with about the same results: more government power, less economic freedom; under neither did the state whither away, but became an all-encompassing behemoth.
Under the free market rhetoric of “conservative” regimes, the government has not shrunk, but expanded, so much so that we now have a government of nearly imperial power and privilege, headed by an imperial presidency that ignores not only the laws of congress and the Constitution, but even basic human “laws” such as the law against torture as an instrument of state policy. Government expenditures as a share of GDP are about the same as they were before the conservative ascendancy, but the cost of government has far exceeded its tax base. The result has been an increased dependence on borrowing. At the start of the Reagan administration, the federal debt was about $700 Billion; at the close of the Reagan-Bush era, it had tripled to $2.1 Trillion. It doubled again and then doubled again, and then grew some more and now stands at about $11 Trillion and rising rapidly. This increased debt represents an effective tax increase, since borrowing is taxing too, but a tax shifted on to the next generations.
This leads us to an unavoidable conclusion: capitalism and the free market are incompatible. History shows, beyond any reasonable doubt, that the growth of capitalism and the growth in government go hand-in-hand. Big capitalism and big government are not, as in the popular imagination and the economic treatises, things opposed; rather, the one grows on the back of the other, and the more you get of one, the more you will need of the other.
Distributists will not be surprised at this result, since it exactly matches the predictions that Belloc made in The Servile State. The capitalist state, Belloc believed, would grow increasingly unstable, and could only stabilize itself by enlisting the power of government.4 Belloc wrote before the rise of Keynes, but Keynes’ methods were no surprise to readers of Belloc. Keynes indeed found a “solution,” but Belloc had already predicted the solution, and the solution is servility. In Keynesian states, people cease to be citizens and become mere clients of the state, where even their most ordinary needs are the subject of one or more governmental bureaucracies, and where even ordinary local problems are pushed up to be the responsibility of the most distant levels of government.
But as successful as Keynesianism has been at rescuing capitalism from itself, one wonders if this cycle can continue. Each new business cycle seems to require greater intervention than the last, and this latest crises requires gargantuan efforts. Can this exercise in gigantism continue forever? Most likely not, at least not in a finite world; sooner or later we come to a point where the system can no longer sustain itself. We may now be at that point. Certainly a $11 trillion debt at the Federal level alone is daunting enough by itself, and that debt shows no sign of abating. But even more problematic is the increasingly servile nature of the population, a population easily manipulated by commercial advertising and political “spin.” The servility which Belloc predicted, which Keynes institutionalized, and which Hayek feared on the theoretical level but did so much to advance on the practical level, is now upon us. Thus our problem transcends the merely economic; we must deal with a cultural problem as well. We have saddled our children with crushing debts, just as we have deprived them of the independent spirit which leads a man to pay his debts.
But if Capitalism, Keynes, and Hayek have all failed, then we must search for the roots of their failure. If capitalist rhetoric no longer describes economic reality (and hasn’t described it for the last 60 years), then we must discover a rhetoric more aligned with reality. In order to do this, we will have to re-examine economic theory from the ground up to discover the flaws and find the cure. And the cure, I am convinced, is to re-establish economic science on its traditional base, a base that disappeared in the late 19th century. And the base of economics, as with any humane science (science that examines relationships between human beings) is justice.
1R. Matthews, Jobs of Our Own: Building a Stakeholder Society (Sydney, Australia and West Wickham, UK: Comerford and Miller, 1999), 119
2 Daniel M. Bell Jr., “What Is Wrong with Capitalism? The Problem with the Problem with Capitalism,” The Other Journal.Com, no. 5 (2005).
3 NBER Website, Business Cycle Expansions and Contractions (National Bureau of Economic Research, 2006 [cited May 17 2006]); available from http://www.nber.org/cycles.html.
4 Hilaire Belloc, The Servile State (Indianapolis, Indiana: Liberty Classics, 1977; reprint, 1913), 107-21.
[…] Medaille’s article “The Economics of Distributism Part 1: Does Capitalism Work?” (Front Porch Republic) which makes reference to the book. Here is a short quote from the article that is well worth […]
[…] Distributism v Capitalism The people who argue that “capitalism works” are the same people who argue that we should have less government interference in the market. Now, I am all for less government; however, the plain fact of the matter is that capitalism cannot function without this interference; capitalism relies on an expanded state to balance aggregate supply and demand. Consider this fact: in the period from 1853 to 1953, the economy was in recession or depression fully 40% of the time. Since 1953, that is, since the economy became fully Keynesian, the economy has been in recession only 15% of the time. Moreover, the pre-war recessions were, on average, twice as deep and twice as long as the post-war ones. -link […]
[…] Médaille asks, Does Capitalism Work?, in the first part of his economic defense of Distributism at FPR. There is a certain amount of […]
“Consider this fact: in the period from 1853 to 1953, the economy was in recession or depression fully 40% of the time. Since 1953, that is, since the economy became fully Keynesian, the economy has been in recession only 15% of the time.”
This statistic seems essential to your argument that only a Keynesian Capitalism works however it seems insufficient for your argument.
First, why is Keynesian Capitalism charted as beginning in 1953? This seems to discount the influence of Keynes’s thought within his own lifetime despite the fact that he was very influential in his own country as early as 1919 and certainly the dominant economist behind the thinking of the New Deal here in America (The date for Keynes’s dominance could conceivably be as early as 1933 but certainly no later than 1938).
Second, this is a comparison of two very different samples. The first is nearly twice as long in period. They also reflect huge differences in society, culture, technology, and demographics. Is it really instructive to place economic data from the America of 1853 and place it against data from 1997 America. Granted their is a different macro-economic policy but that seems like a relatively tough comparison to make given all the other variables.
The real question is what the data is comparing more Keynesian economies to less Keynesian economies over the same period of time. Comparing developed countries to developed countries and developing countries to developing countries. This data would be much more applicable to your case. It has to exist. What does it say?
An indictment of capitalism as sweeping as the author’s requires more and better data than what has been provided.
[…] according to John Médaille at FPR, who is in the midst of an essay on the economics of distributism which looks to be quite […]
It is easy to stay out of recession if you can debase your currency by 90%. The statistics are so superficial and cherry-picked that they aren’t even credible as lies, much less damn lies.
I can’t speak directly for Hayek, but I think he would be horrified to be associated with the debts and deficits, and even Reagan was less responsible than Congress. Taking half of a prescription is often worse than taking none at all.
Meanwhile, the effect of the recession the Austrians would note have simply accumulated. Starting the period we had lots of savings, and relatively full employment, but no boom or heavy consumption. We end up with a large portion of the population at the edge of bankruptcy (which will make this recession different – you need to measure both time and depth, as 2 years of a mild recession without bankruptcies is very different than 3 months where a third of the population are wiped out financially).
For all that, I think the Distributist model is probably more accurate, but problematical. If everyone could take $10,000 in a hobby/home business tax-free, but have to contend with regulation, there would be fewer regulations. Splitting Labor from Capital is the mistake, but we encourage both to remain segregated.
The final flaw is merely another Fatal Conceit (to borrow the title from Hayek). Generally anything will work if the population is moral and foresighted. You can”t force anything upon an immoral or shortsighted population and expect it to work. Distributism will fail the same way – with people either cheating in that context or requiring an iron hand and micromanagement to insure this game is played fairly.
But that is the ultimate answer. Subsidiarity. Have government small and only acting as referee to the game (which means people can lose, can’t accumulate toxins, nor can they transfer costs they incur like pollution to third parties). Government CANNOT make people moral, and becomes corrupt and evil in the attempt.
It is always the temptation to do something like use the tax code to encourage some behavior or discourage something else but that is still corruption. The tax code should strive for as much neutrality as possible and simply supply revenue with the least distortions.
And it is a full time and often failing job to just keep government bound and functioning as referee instead of scriptwriter planning who wins and loses in the next act. Government cannot keep itself free from corruption for any length of time when it is doing its minimum, why expect it not to corrupt everything it touches that it has no business touching?
If Distributism is the optimal system, it will arise naturally under a minarchy, or not at all.
TZ,
Hayek’s thought had a great deal of influence on Thatcher (Not as sure about Reagan). However both Reaganomics and Thatcherism included a major monetarist component which is antithetical to Hayek’s thought. Milton Friedman would have been a much better example of the thought that shaped Reagan and Thatcher’s policies.
For an Austrian critique of the monetarist supply side approach see:
http://mises.org/econsense/ch10.asp
tz, tax code should not be used to effect changes in behavior? Why ever not? It is the function of government, at least good government, to take action in those spheres that that are not susceptible to influence by smaller actors. If you take away that ability, and tax code is certainly one of the biggest tools in that box, then you have a particularly bad form of limited government.
Manipulating human beings to do what is their best interest is never easy. Why remove one effective tool?
(recognizing, of course, that “best interest” is totally open to disagreement and misuse)
Jake
Jake,
Based on this comment, and your comment yesterday on subsidies, you seem to be coming from the assumption that “manipulating human beings” is in fact virtuous, and the responsibility of the government. I think this is where our fundamental disagreement lies.
“A wise and frugal government … shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”
— Thomas Jefferson
What gives you, the president, or even a democratic majority the right to attempt manipulate me to do what you “think” is in my best interest. The government is supposed to be by me and for me, not over me. I personally hate the idea of an engineered society. The “best interest” issue you recognize is only one of the many problems of the government attempting to manipulate its citizens for their supposed best interest.
Dan, I picked a full 100 year period so as not to be accused of cheating; if you start Keynesianism in 1943 or 1933, the numbers will actually be slightly worse for capitalism and slightly better for Keynesianism. And if you don’t like the comparative lengths, then pick any arbitrary 50-year period you like from both. You will get exactly the same results. Nor do I comprehend your point about changes in culture. Are you saying that we were culturally less stable before 1950 then we are today? That strikes me as unlikely.
TZ I am sure you are correct, and Hayek would not be pleased with the results. And he may even say, as many of his and Mises’s supporters do, that Reagan and Thatcher and Pinochet and 100 others “didn’t do it right.” The problem with this is that it is precisely the same as the defense of Marx: “Stalin (or Reagan) was not a good test of my theory…” But they may be the best test the theories can sustain. Hayek would be horrified by Reagan, and Marx would be mortified by Stalin. But both seem to end in the same place. Both Marx and Mises promised a “withering away of the state”; both delivered states of enormous power, expense, and tyranny.
When the application of a theory always ends up the same way, we are entitled to think that is the only way it can end. Why do theories in application differ so much from their predicted results? Both Marx and Mises run up against the Law of Unintended Consequences. Since consequences are potentially infinite and intentions necessarily finite, this law is always operative. But when a theory is incomplete relative to the phenomenon it purports to describe, then the unintended consequences will always outweigh the intended ones. Usually, the system doubles back on itself to become its opposite. The moral of this story is you can only judge a theory that purports to describe human systems by seeing how it works on the ground.
I do agree,tz, that the separation of labor and capital is at the root of the problem. Overcoming that separation is the whole point of distributism.
Jason, having clean water and air is indisputably in your best interest. Yet, as we can clearly see in our own recent past, without both disincentives and incentives, we would have neither. How would you bring about a change from a polluting economy to a less polluting one without manipulating human beings?
We all use incentives and disincentives to bring about behavior we believe to be better, for whatever reason. We do it within our families, churches, schools and workplaces. How is it wrong if our government does the same thing? I recognize that the whole “best interests” thing is totally open to debate – on many issues. But not all.
I don’t want to drink water contaminated with your feces. I sincerely hope government can incent you to manage your feces so as to not degrade my quality of life. I am quite sure you feel the same way about my feces.
Jake
Jake,
I don’t think we are on topic, and that is probably my fault. I do think the government should act when rights are being violated.
If it can be determined that my feces violates your rights, then the government should punish.
Then, the obvious question is what are my rights. To bring it full circle back to yesterday…college education and home ownership are not rights.
John,
What I am asking for is an apples to apples comparison. As to the profound historical, cultural, and technological changes that make a 1853-1953 to 1954-2007 comparison troublesome here are a few:
In 1853 the vast majority of African Americans were enslaved working in the agricultural sector of the economy. Sharecropping, debt slavery, and Jim Crow were all utilized to keep African Americans from more productive sectors of the economy for the entire duration of the earlier period.
The first period is also one in which the economy and workforce as a whole is largely agricultural. The transformation to an industrial economy is one that takes place in the early 20th century. 1953 looks a lot more like 1903 than 2003:
http://www.ers.usda.gov/publications/eib3/charts.htm#fig1
Women first enter the workforce in large numbers in the second era. The first era they are largely absent from.
I could continue but if you can’t see why comparing a “capitalist” economy in 1853 to a service based economy in 2003 is problematic I see little use in continuing with a litany.
Again how do nation to nation comparisons at roughly the same time and level of development pan out? Such a comparison would be a much more useful piece of evidence to prove capitalism’s failure.
Jason, college education and home ownership are goods, tho, and they may be goods, like primary and secondary education, from which benefits accrue to the nation at large.
If we follow your logic to its ends, we find no good reason for even primary and secondary education to be considered rights. Yet I don’t hear anyone arguing otherwise, unless that’s an undertone of the whole voucher thing I’ve just plain missed.
People who own their homes are more invested in their communities. Not just because it’s harder to exit, but because their own wealth, of which a homes forms a significant part, is at risk.
Not all people can take advantage of post secondary education, most particularly college – but for those who can, is it not better to have a people as well educated a possible, even if we are only talking a percentage? Isn’t it better for the nation as a whole to insure that all who want and who can benefit get a shot at it? I believe it is, and what’s more, I believe that is one of the lessons of the GI Bill and the VA’s loan guarantee program – which, coincidentally, addressed both home ownership and education.
In a way, we’ve done that experiment, we know how it turns out if we do it right – and it’s a good outcome for all of us, Jason.
Of course, if you follow MY logic, you inevitably come to see that universal health care is also a good that benefits all of us. 🙂
Which is all too true.
Jake
Jake,
It is a fact that some people in our country get educated, own homes (kinda), and receive healthcare from professional doctors, despite lacking the means to provide these things for themselves. However, none of these things are actually rights. All of these things are dependent upon wealth, and they are merely luxuries of living in this country (currently). Just because the more recent generations have grown accustomed and feel entitled to these things, doesn’t mean they are rights.
Liberalism used to stand for liberty and freedom. Now it just stands for liberation from material wants, and from the the laws of economics and scarcity. Which, by the way, is impossible.
Again, I’m not sure that we are really contributing to the topic on hand, and I don’t see either of us changing our minds, so I think I am done.
Dan,
How can one compare things that are inevitably incomparable? What nation will you compare to the US during any period in it’s economic history? Which nation was more purely capitalist in the post-war period than we? If you can find one (Switzerland? Japan?), I can find far greater differences with the US over the same period than you list for differing periods in the US.
Yet one must make some comparison to even discuss the question. I think Mr Médaille has chosen reasonably comparable examples. If you disagree with his choice, make your own selection and do the analysis. If you come up with differing results, then we can discuss which is a better comparison, and maybe come up with other comparisons which shed light on the question. As it is, you are simply rejecting the comparison out of hand. After all, it is not his job to make your argument for you.
Jake,
You mistake, as Ivan Illych put it, “process for product.” You confuse college with education. College has become, in this country at least, an extended high school, where the children of the middle class go to; 1)keep them out of the labor market, 2) strip them of their religion and culture and 3)extend their adolescence beyond all reasonable limit. However much education can be described as a good, college is not an unqualified good for anyone. For many, probably most, who attend most colleges it is the next step in the destruction of Western Civilization. Why anybody who pretends to concern for place and culture would think it college attendance a good thing that must be made available to as many as possible defies my imagination.
Also, there are a great many people in this country that would dispute your description of primary and secondary education as a right. They are largely people involved in education themselves, mostly, like me, homeschoolers. Perhaps if rights as understood these days did not include the considerable coersion and immediate danger to families that our schooling laws entail, your argument would be more persuasive.
All product comes from process. It’s statistics, probabilities, the inexorable weight of large numbers. Some are served poorly, many are served well enough, and some find the porridge just right. No doubt education aimed at the individual would be a far preferable process and a better product, but that is not what we have, and not what we will ever have, not for most of us.
I think if you reread what I said, both of you, you would see that I do not use the word right in my description of primary and secondary education – I say they are goods from which benefits to the nation accrue. And that, gentleman, remains my point. With respect to education including post secondary and home ownership. What I did say was that I heard no one arguing that primary and secondary education are not rights – so clearly my educational horizon has just expanded.
Benefits to the nation, gentlemen. Which nation is no more than a large collection of somewhat likeminded individuals who might be your brother or sister, son or daughter.
Jake
Which nation is no more than a large collection of somewhat likeminded individuals who might be your brother or sister, son or daughter.
Precisely incorrect. If the nation were no more than this, I would pack up and move to Europe in a heartbeat. A nation is a shared history and a shared culture. We need not be likeminded. We need be American.
Danby, we need only be human. That’s a great place to start. As for American, that’s simply a matter of the luck of the draw. Or sometimes not, frankly.
Anyway, my point is not obviated by your comment. Just think of my comment as referring to Americans of all kinds with our shared history and some shared values and I think you will get my point.
Not knowing any more than your name, don’t you imagine you share history with other cultures on this planet? Or does only recent history count? If so, how recent? And how do you decide?
Jake
Dan, I find it difficult to discover the point you are trying to make. Perhaps it is “Laissez-faire doesn’t work in an economy where too many people work on farms,” or “It doesn’t work if women don’t have the vote,” or “It doesn’t work if Blacks do not have the vote,” or whatever. Okay. I can accept all of that. But then you have another problem: you can tell all the conditions under which it won’t work, but not the conditions under which it will. Indeed, in the entire history of mankind, you cannot point to a single functioning example of this supposedly correct economic system.
But this fact remains: you and I have lived our whole lives under a system that has brought us levels of peace and prosperity rarely seen in history, and yet this system is the one its critics say can’t work at all. There is, at a minimum, a certain lack of gratitude here. Worse, there is a lack of curiosity. Why should we need such immense gov’t structures to support a supposedly “free” market system? The things that you might say would kill a market system have saved our particular market system. Now, I don’t believe this system can work much longer. But we have been where the critics want us to be, and it was a time of chronic chaos. Those who wish to go backwards may get their wish, and then they might remember the old warning, “Be careful what you wish for.”
John,
You claim that Mises promised a withering away of the State. Where does he say this? What theory of Mises are you talking about? Can you articulate it? In which of his works can I find this theory?
John said…
And he may even say, as many of his and Mises’s supporters do, that Reagan and Thatcher and Pinochet and 100 others “didn’t do it right.” The problem with this is that it is precisely the same as the defense of Marx: “Stalin (or Reagan) was not a good test of my theory…” But they may be the best test the theories can sustain. Hayek would be horrified by Reagan, and Marx would be mortified by Stalin. But both seem to end in the same place.
I have to admit that I am 26 years old and don’t remember much about the collapse of the Soviets, but would you say that while Reagan and Stalin “didn’t do it right”, they’re short-comings are on equal levels? Who would you say got closer to getting their respective theories right, Reagan or Stalin? I think there is an argument that other, much earlier American presidents got much closer to Hayek’s vision than Reagan.
I understand that the proof has to be in the pudding, but would you say that Communist Russia and America of the last 25 years are on equal ground, or they “both seem to end in the same place”? Hasn’t “not quite right” capitalism put us far ahead of where “not quite right” communism did? If you would agree (actually even if you don’t), I think there is an argument to try markets that are more free, with a less cumbersome government.
John and Danby,
The reason I may in fact appear to be belaboring this example is that it is the only example in the piece that provides empirical evidence to support John’s thesis. The whole point of the article, and rightly so, is to begin to fill in the gaps in Distributist theory in economics terms.
The argument runs like this:
1) Capitalism doesn’t work
2) the ‘success’ of capitalism is really the success of Keynesian capitalism,
3) Keynesian capitalism is unsustainable,
4) Distributivism may be a sustainable alternative (I imagine this to be the focus in the next essay.)
Two is an essential piece of the puzzle that is supported by one piece of evidence that is flawed in the following ways.
1) Samples are from radically different periods of economic development. (This has been my chief objection) Again in the later period the labor pool is more than doubled, the economy has fully shifted to an industrial model, all other developed nations have been ravaged by war, etc.
2) It assumes without explaining why, that the percentage of time in recession the sole criterion for a successful economic system.
If one wishes to join the debate on economic terms, as John has so admirably chosen to do, there needs to be more data than what is present to back up the assertions. I’ve recommended an additional possibility for evidence. One could look for a more Keynesian economy over the same period that should, theoretically, have preformed better over the same period or a less Keynesian economy that preformed worse. This in itself would not conclusively prove anything one way or another but it would be part of a more impressive case.
To Dabny’s question as to more purely capitalist an example that may be worth examining is Switzerland during free banking (1826-1907).
To John’s point, “But then you have another problem: you can tell all the conditions under which it won’t work, but not the conditions under which it will. Indeed, in the entire history of mankind, you cannot point to a single functioning example of this supposedly correct economic system.”
I think you are totally correct on this count. One cannot point to a single example for any defense economic system (Including Distributism). One needs many examples and one also has to craft arguments as to why particular problems are not the product of the economic system or the economic system alone. Social sciences are a messy business. This is why more data and better data is essential when making an argument like capitalism doesn’t work.
John,
“But the more “Hayekian” the economic rhetoric became, the more Keynesian the economy has actually become; the unintended consequence of Hayek’s policies have been the opposite of what Hayek wanted: larger governments, greater debts, more centralized economic power, and so forth.”
I think it is important to note that Hayek’s policies were never implemented. There are important ways in which Hayek was a model for Thatcherism and Reaganomics but the larger governments, greater debts, and more centralized economic power were the results of massive defense spending and monetarist policy which Hayek spoke out unequivocally against. This isn’t a matter of a “Hayek’s ideas weren’t implemented correctly” but Hayek’s ideas were not considered and had no effect on defense and monetary policy.
Jason, to say that two systems have failed says nothing, one way or the other, about their moral equivalence; it merely addresses their practical impotence to accomplish what they set out to do.
Art, I would have thought that the least controversial thing one could say about Mises is that he wanted a minimalist state, one that did nothing more than protect property and contract. The anarcho-libertarians look to him for guidance for a complete removal of the state. And Mises it was who accused Hayek of being a socialist because he permitted even minimal state interventions. The odd thing about Mises and Marx is that they both view the state as safeguarding property; one has it guarding it from the state and the other has it guarding it from the capitalists. I agree with both.
Dan, you are correct in your first three points, and I will provide evidence for the fourth. I am still puzzled by your claims about pre-Keynesian capitalism. Before one can say “it failed because of Jim Crow laws or lack of woman’s suffrage,” one must first say, “it failed.” Hence you are left, in this country at least, without any working examples of the system you espouse. You cite the Swiss Confederation in its “free banking” period. I admit that I can’t make any informed comment about the Swiss economy, but two points immediately come to mind. One, we tried free banking in this country from 1836 to 1863, and it was a disaster, and; two, I very much suspect that Switzerland is a country of widely distributed ownership and small craft production without great concentrations of wealth or political power. Hence, without knowing any further, it would seem to be more of a distributist example.
Finally, you say One cannot point to a single example for any defense economic system (Including Distributism). On the contrary, if distributists could not point to working examples, I would not be a distributist. And I do not mean examples from the remote past, although there are many, but examples from the current moment and of sufficient duration to judge their long-term stability in a variety of economic circumstances. All systems work in theory, or at least in the mind of the theorizer. Its getting them to work on the ground that’s tricky, and without seeing the practice, one cannot fully judge the theory. As The Wit has said, “Philosophy is easy; plumbing is hard.” The plumbing of economics is very hard indeed, and one wants to see it in operation to make sure they are not trying to get the sewers to run uphill.
John,
When you speak of morality, are you implying that the morality of each economic system existed on its own, and the fundamentals and underpinnings of the system in no way influenced the morality of said system? I’m not sure that you are, but if you are, I have to disagree.
I very much agree with Mr. Rockwell, when it comes to this issue:
http://www.lewrockwell.com/rockwell/hitlers-economics.html
It is wrong to attempt to examine the economic policies of any leviathan state apart from the political violence that characterizes all central planning, whether in Germany, the Soviet Union, or the United States. The controversy highlights the ways in which the connection between violence and central planning is still not understood, not even by the ADL (Anti-Defamation League). The tendency of economists to admire Hitler’s economic program is a case in point.
But being cavalier about the moral implications of economic policies is the stock-in-trade of the profession. When economists call for boosting “aggregate demand,” they do not spell out what this really means. It means forcibly overriding the voluntary decisions of consumers and savers, violating their property rights and their freedom of association in order to realize the national government’s economic ambitions. Even if such programs worked in some technical economic sense, they should be rejected on grounds that they are incompatible with liberty.
Perhaps the worst part of these policies is that they are inconceivable without a leviathan state, exactly as Keynes said. A government big enough and powerful enough to manipulate aggregate demand is big and powerful enough to violate people’s civil liberties and attack their rights in every other way. Keynesian (or Hitlerian) policies unleash the sword of the state on the whole population. Central planning, even in its most petty variety, and freedom are incompatible.
Now, this is obviously not an argument against your assumption that Hayek provides the on-ramp to the Keynes Super-Highway to serfdom, but I don’t think that the moral realities that accompanied the different economic systems can be looked at as independent and unrelated.
If I mis-understood, my apologies.
John,
“The odd thing about Mises and Marx is that they both view the state as safeguarding property; one has it guarding it from the state and the other has it guarding it from the capitalists. I agree with both.”
Marx advocated the elimination of private property for everyone, not just the capitalist/bourgeois. No one could own the fruits of their labor, therefore how could the state wither away. Socialism requires the political leaders to threaten or commit violence against their fellowman. Mises never said he wanted the state to wither away. He wanted the state to stay out of our personal and work lives and do its “proper” job, protect our right to run our own lives as we see fit, and to use police power/violence to punish only those of us who aggress against the lives and property of our fellow man. Mises saw very clearly the propensity for politicians to get in bed with businessmen, unions and any other group who wanted protection from the rigors of a free market. The capitalism you condemn he would too, but he would call it crony or state capitalism. It too requires the threat or the use of violence by the state against innocent people, to deprive them of their freedom and wealth. That’s what we have today in this country. It’s more like fascism then then the genuine capitalism/free market that Mises described.
Best wishes,
Art Thomas
Any economic system that puts distance between the individual, their labor and harvesting the fruits of their labor is a system that will consign labor to a soul-less statistic….a noisome means to an end…. and hence dehumanize the participant, thus eliminating the essential reason to possess an economy in the first place.
Under Marxism, labor was glorified but the individual was branded a pejorative to be subsumed by the masses while in the current capitalism, the individual is glorified as a bait in service to a switch of government-institutional hegemony while labor is a pejorative.
Much is made of the “Hidden Hand” and if it indeed exists as an ameliorative aspect of the free market then it seems it is cloaked at this juncture with a boxing glove…and maybe even some lead plugs….. and so the central need is for creating conditions for a fair fight. How does Distributism do this?
Jason, when you say “When you speak of morality, are you implying that the morality of each economic system existed on its own, and the fundamentals and underpinnings of the system in no way influenced the morality of said system?” I am not quite sure what you mean. But I do agree that the leviathan state and the mega-corporation feed off each other. It can work no other way, because the corporation distorts the market all by itself. See http://distributism.blogspot.com/2009/03/chapter-xvi-distributism-and-industrial.html The corporations are, as one writer put it, “indigestible lumps of socialism in an otherwise free-market system.”
Art, I agree, but the question is why are mega-businesses so successful in bending government to their will. The reason is clear: the accumulation of property is also the accumulation of power; the two cannot be divorced. Power follows property, as Daniel Webster pointed out. Further, under Mises’s own reckoning of human action, the people with power will act in their own self-interest to increase their wealth and power, which means increasing their power in government.
D.W., you answered your own question, an answer I will expand in this series. The problem is the distance between labor and property. I don’t think central planning is really central to the question. Property is.
John,
I think the key difference here is the definition of the failure and success of economic systems.
In the essay the definition of failure seems to be, the inability to maintain economic growth for more than 6/10 periods of time within a larger span of time.
Success would seem to be the ability to maintain economic growth for more than 8.5/10 periods of time within a larger span of time. In order for the system to be truly successful it must also be sustainable (Indefinably?)
In addition economic growth is the sole product of the economic system in place and unrelated to the labor pool, culture, social institutions, or technology.
I think this is a bad way to look at success and failure. I would not describe either capitalism or Keynesian capitalism as failures (Although I share your concerns about the sustainability of Keynesian capitalism).
This is where Distributivism often goes down the rabbit hole of making outlandish pronouncements regarding the death or collapse of capitalism, decrying “wage slavery”, etc.
Your right in your instinct to learn from the Fabian’s who lost the Marxist rhetoric (Which Belloc appropriated for his own purposes at around the same time) and instead make a case for improving a functioning but imperfect system. The practical insights of Distributivism are much better (and more marketable) than the ideological rhetoric.
Dan, you attack, but you do not defend. You object to comparisons that reflect unfavorably on your position, but do not propose an alternative. You attack using recession as a marker for failure, but won’t share what you think a success would look like.
I have taken recession, and the unemployment, misery, and destruction of financial wealth that it brings, as a sign of failure; I don’t know how it could be otherwise. I have not yet pronounced on what the criteria for success is; I will get to that in section III. But what I certainly won’t do, and haven’t done, is take growth per se as the sign of success. Indeed, the “booms” are as much a failure as the busts, since they usually involve a gross misallocation of resources. That the numbers show that the purer form of capitalism failed 40% of the time is indisputable. I would go farther and say that there was an equal set of failures on the upside, giving an 80% failure rate. But I do not insist on the point. I view the booms as mere preparations for the busts, but if someone wants to see them as a sign of success, that’s fine as well. I merely point out that these booms are always followed by busts, and that one should at least express some curiosity as to the cause.
Hi John,
The temptation is there for all of us, no matter who we are, to misuse whatever power we have. We all have power to harm other people, innocent people. In the realm of business the temptation to harm their competitors or would be competitors confronts business people who run large and small companies alike. Real freedom can be a scary thing. Who wants to fail and go bankrupt? Who wants to see their customers leave for greener pastures, for businesses who do a better job of giving them what they want? So their fear compels them to use the law, to make alliances with local, state and federal governments to hamstring their competition. Politicians being hungry for power are happy to oblige. The cover story for we the people is these laws are here to protect you from greedy, unscrupulous people. Thank you massa.
There are plenty of business people who want to compete freely and do not support protectionist policies and taxpayer handouts to bankrupt banks and other businesses. One example: The CEO of BB&T, the 9th largest US bank publicly opposed the bailout and refused TARP funds but was forced to accept them when he was overridden by his board of directors after they were threatened with expensive audits if they didn’t accept.
In a real sense power does follow property as you point out. Our most intimate property is our minds and bodies. But we have a choice as to how to use whatever power we have. We do not have to violate the natural right of others to their life and property in order to better ourselves. To do so, in my opinion, is unjust. And to enshrine these injustices in the law is the epitome of corruption.
John,
The economic problem is one of scarcity, there is simply not enough for everyone to get everything they want all the time. An economic system is a system to allocate scarce resources. An economic system succeeds or fails on its ability to make available those scarce resources to the people who want them.
So an economic system succeeds in the most basic way when goods and services that people want or need are widely available. An economic system fails in the most basic way when goods and services that people want or need are widely unavailable (Think going to the grocery store and seeing bare selves.)
What you believe as signs of failure are simply inefficiencies (Not to say inefficiencies can’t be a legitimate cause for concerns or cause people real problems). You admit your self that recessions are caused by a “misallocation of resources”. Inefficiencies. You also admit that these inefficiencies self correct in capitalism through booms and busts. You object to the booms and busts in that they cause social ills yet agree they are necessary for the system to function effectively in the sense of being able to maintain the availability of scarce resources.
I don’t see this as failure. Failure is a failure to function, to break down. If you were grading capitalism’s essay would you give it an F? Did capitalism fail to address the problem? Did it fail to deal with the fundamental issue of scarcity? Or is the complaint rather that it fails to do what it does as efficiently as possible? That sounds like at least a solid C to me, certainly no lower than a D-.
Dan,
So unless people are starving in the streets, an economic system is not a failure? Using that as a measure of failure, one could plausibly argue that Russian Communism was a success. Certainly, one would have to view German Fascism as more successful than American Captialism during the 1930’s and early 1940s. It’s a ridiculous standard.
Danby,
For something to “work” or not “fail” the threshold is extremely low. My lawnmower works if it cuts grass, no matter how much it rattles or blows smoke. So long as the blades keep twirling and it doesn’t catch on fire it gets its job done.
One of the chief problems distributivism has is that it’s underlying analysis of the problem with capitalism is fundamentally Marxist. Belloc’s understanding of the way capitalism works or rather fails to work, and indeed must inevitably break down is the same as Marx’s. This analysis is not merely one of addressing problems or inefficiencies but the structure of the system itself.
The Soviet system did lead to shortages which eventually crippled the economy. It failed to make goods scarce resources available. The Nazi regime in Germany had three distinct economic policies during its life. The first might be described as mega Keynesianism under Schacht (1933-1937) which I’m sure John would agree is just as unsustainable as American Keynesianism if not more so. Under Goering (1938-1942 the system was transformed into a Soviet style command economy and shortages emerged as a major problem. Speer then directed the economy until the end of the war, again under a command economy model (Again shortages, although by this point the war had more to do with that then economic policy).
Dan, if I have lowered the bar on the definition of failure, you have certainly dumbed-down the definition of success. But even by your dumber definition, 40% people cannot get what they need and want.
But your machinations put you in a further bind: namely, the the Keynesianism you despise certainly passes your own definition of success, and passes it at a higher rate! Thus, you can only save Austrianism by further building up Keynesianism.
So, let’s go with your definitions. Frequently in these long, pre-war downturns, the shelves were indeed bare. But let’s put that aside, and note that there is one “commodity” which must people want but which a significant number could not get, and that commodity was work. When you talk about “efficiency” in supplying goods, certainly one of those goods has to be good work. And yet, significant portions of the labor force could not find this good. By your own definition, this is failure.
Booms and busts are not “self-correcting” mechanisms, they are merely stumbling from one kind of failure to another. The boom is merely the preparation for the bust, because it misallocates resources, which then get negated by placing the opposite sign on them. It seems to me that the best your economic system can do is do things badly.
I think there are better solutions; solutions that are on the ground, working, and have a long history. At this moment in history, bogged down in what clearly does not work, it is a good idea to look at what does.
John,
The 40% of people you speak of do not exist in the data. The 40% are merely periods of negative growth. Not a pleasant thing for sure, and something that has the potential to cause all sorts of social ills. That being said that in no way means that 40% of the population did not have available the goods and services they wanted or needed. Those goods and services may have cost more than a certain amount of the population could afford due to unemployment and underemployment but I have never herd of widespread shortages of goods in this country’s history that were unrelated to either central planning (rationing, war or natural disaster. Feel free to correct me with data if I am wrong.
Keynesianism certainly does pass my definition of success in the short term. The question of its sustainability is a concern we both share.
As to unemployment at no time in our country’s history has it been higher than 25%. This high point in 1932 was, I would argue, the product of central planning (massive tax increases, price fixing, tariffs,and regulation of the labor market which Roosevelt would oppose in the Presidential campaign that year). If we consider under normal conditions 5% of unemployment to be transitional and temporary for most of our nation’s history no more than an additional 5% of the population who desired work has been unemployed not the significant portions that you claim.
I fail to see how your criticism of booms and busts is in any way unique to capitalism. Cuba has experienced a similar cycle since the revolution:
http://en.wikipedia.org/wiki/File:Rent-Cuba-Carib.png
No economic system the world has ever know has been able to escape this cycle. Inefficiencies happen, malinvestment happens, people are not omnipotent. Blaming capitalism for the business cycle it like blaming your doctor for getting old.
What we are bogged down in at the moment is not any sort of free market capitalism of any sort and you know it. I’m eager to hear you make your case for alternatives however.
I fail to see how your criticism of booms and busts is in any way unique to capitalism. Cuba has experienced a similar cycle since the revolution
Dan, is that going to be the new Libertarian slogan? “Capitalism: It’s no worse than Cuba!”
But as I have repeatedly pointed out, the “purer” form of Capitalism had a 40% recession rate, the Keynesian a 15% rate. Which do you prefer?
John,
There are certain things that no economic system can escape. For instance, everyone dies, this is not dependent on any particular system be it communism, capitalism, distributivism, or a primitive barter economy. Also, they cannot control the weather. Similarly due to the fact that no human being or group of human beings has perfect knowledge inefficiencies and malinvestment will happen. These inefficiencies and malinvestment will cause booms and busts. I believe that the free market works best to clear out inefficiencies and malinvestment and minimizes the inevitable effects of the business cycle.
Keynesianism, as you have pointed out, minimizes these in an unsustainable way. It does not fix the problem but delays it and compounds its effects. With this knowledge, on which I believe we both agree, I would go with the sustainable model of free market capitalism.
I’m eager to see your alternative but there is no question that capitalism works. It may not be rainbows and sunshine every day but its a sustainable way to deal effectively with the problem of scarcity.
Dan, your response remains the “we’re no worse than Cuba” defense. If a 40% failure rate (80%, if you count the booms as misallocations) is that best a system can do, then say so. But why do other systems do so much better? Why did Taiwan have only a 2% unemployment rate–or less–throughout most of its postwar history? Because it used distributist policies? Hmmm. Why did some countries whether the great depression better than others–or not experience it at all? Why did some come out of the slump faster than others. Aren’t these questions worth a little examination?
Yet, I just note a certain lack of curiosity on your part. This is not surprising. I take it (correct me if I am wrong) that you are an Austrian, an “axiomatic” system that answers all questions in advance, and hence has little need for actual history.
But I like to delve into things. I would like to know why a system like Keynesianism gets better results than pure capitalism, when it shouldn’t work at all. Yet work it has, and you and I have lived our whole lives under it, in a time of not only great prosperity and peace, but relative equality (until the last 10 years or so.) This is remarkable. You keep telling me that capitalism works, and I keep asking “When?” “Where?” The system you praise might not ever have existed, but the closer we get to it, the more misery results.
That’s history.
John,
The business cycle is a problem that has never been solved. Marx thought he had a solution to the problem (scientific planning), Keynes thought he had a solution (inflationary policies), the Austrians think they have a solution (free banking and 100% reserve ratio), and Distributists think they have a solution (Which I am sure you will outline in your next piece). I’ll believe all these solutions to be so much quackery until I actually see an economy experience constant economic growth. I don’t see the business cycle as a solvable problem without somehow having the ability to secure perfect knowledge.
Taiwan’s post-war unemployment rate it the product of massive foreign investment in the island after the KMT’s defeat as well as persistent government policies to keep wages low including but not limited to the suppression of independent labor unions.
I am not, as you have suspected, an Austrian. While the Austrian’s make valuable contributions to calling into question attempts at “macroeconomics” I don’t find all of their arguments convincing, such as their explanation for business cycles always being prompted by government intervention (As opposed to mostly). I’m also agnostic on the gold question.
I’m glad your curious but wish you would be a little more critical in your evaluation of economic systems and realize that economic data is not merely the product or a system but the decisions and interactions of people who live in a history and culture. Again I’m glad you’re attempting to bring distributism out of its ecclesiastical ghetto and into economic discourse but analysis is going to have to go beyond an indictment of the business cycle.
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After reading John’s article and the comments I cannot help but think that the Republican and Democratic parties beliefs (I would not grace them with the term philosophies)are little different than Corrupt Communism where after the Wall Street managers were caught counterfeiting financial instruments they had to turn back to the party and its government to get it out of the deep doo doo. Tell me the difference?
I’m a bit late to the discussion, but I want to make sure I understand distributism correctly.
Distributism is not completely and wholly different from or opposed to market capitalism, rather is seeks to make justice its foundation and to make it hospitable to small and local government–am I correct?
You are correct. Even more, it says that the free market won’t work–isn’t really free–unless property is widely distributed. This is, in fact, in line with classical economics, which is based on the “vast number of firms” hypothesis, which says that every commodity is supplied by a vast number of firms such that no supplier, nor any likely combination of suppliers, can have any market power; they will all be price takers rather than price makers.
But for this hypothesis to be true, capital must be widely dispersed throughout society, and not accumulated by any limited group.
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