Economic Smackdown!: ‘Porchers’ vs. ‘Austrians’

Earlier this month, the Intercollegiate Studies Institute held a summer program for college students in Louisville, Kentucky. Titled “Arguing Conservatism,” the event featured faculty lectures followed by student debates on issues of Constitutionalism, foreign policy, and economics. The latter posed the question: “Resolved: Capitalism is Compatible with Morality.” ISI staff labeled the debate teams for this session “Porchers” versus “Austrians”! A good time was had by all. What follows is the text of my talk on behalf of The Porcher Cause….

Good morning!

What does conservatism, rightly understood, have to say about capitalism? In my remarks this morning, I will provide three answers:

First, I will separate out the socially disruptive effects of the broad industrial revolution, from capitalism per se.

Second, I will summarize the major conservative criticisms commonly and specifically leveled against laissez-faire capitalism.

And third, I will describe an alternative approach to building a free economy which is compatible with conservative sentiments, namely the Humane Economy of Wilhelm Roepke.

Definitions here are important. A definition of capitalism will emerge in what follows. However, for today’s purposes I do want to define “conservatism” at the outset. The modern term comes from the French counter–revolutionaries of the early 19^th Century  -– from figures such as Louis de Bonald and Chateaubriand — who opposed the cultural radicalism of the French revolution. The conservator, they said, was the person who protects the vital spheres of life that nurture human virtue: family; village; neighborhood; faith community; and region. Britain’s Edmund Burke labeled these same spheres the “little platoons” of society. The authentic conservative is still called, first and foremost, to their defense. It’s fair to say, I think, that this definition was the one also held by the 20^th Century  conservative writers, Robert Nisbet and Russell Kirk.

THE INDUSTRIAL REVOLUTION

I turn now to my remarks on the Industrial Revolution. To be sure, this event had sweeping effects on human life. Whether industrialization was pursued under the creed of Manchester liberalism, as in 19^th Century  Britain, or under the creed of Stalinist Marxism in the Soviet Union of the 1930s, or under the new hybrid creed of Communistic-Capitalism now found in China, some of industrialism’s effects have proved to be universal.

The most important of these, and the one most often forgotten, has been the wrenching apart of the workplace from the place of residence. Prior to industrialization, the vast majority of people — well over 90 percent — lived and worked in the same location, be it a peasant or family farm, a fisherman’s cottage, a nomad’s tent, or an artisan’s shop. This unity of workplace and home formed the normal, even natural, human experience. Men and women, joined in marriage, worked together to make their small enterprises a success, sorting out tasks according to their strengths and skills; and so finding a natural complementarity. Children, too, commonly found useful places within these small home economies.

The Industrial Revolution — resting on centralized factories and offices — tore these productive homes apart. The men moved into certain factories; the women moved into others; and, in the early decades, so did the children as well, most working 10 to 12 hour days, six days a week. Economic historian Karl Polanyi calls this change “The Great Transformation.” Francis Fukuyama prefers “the Great Disruption.” Both phrases capture the huge effects on human relationships of this event.

Industrialization, by definition, also has meant the progressive displacement of the home economy. In pre-industrial societies, most homesteads sought and achieved some degrees of self-sufficiency. They raised, and preserved their own food – grains, vegetables, and meat animals. They spun their own cloth and sewed their basic garments. They built their own shelters and raised their own draft animals for field work and transportation. At their best, as on the freehold peasant or family farm, these self-sufficient home economies delivered an autonomy, or freedom, that analysts of liberty such as Thomas Jefferson would admire.

Industrial Production means replacing these products and tasks of a home economy by industrially made goods and services. As it turned out, there would be no end to the process. It usually began with factory-spun cloth and world proceed relentlessly until family households would be stripped of virtually all productive functions, including in the end infant care and meal preparation ( in our terms think “daycare” and “fast food”).

Again, these effects are common to all industrial orders, be they of the classical liberal variety or of one of the socialist models. The conservative remembers that the gift of industrialization — a great array of commodities — has been accompanied by these large social costs.

THE EFFECTS OF CAPITALISM

Conservatives have also leveled criticisms of this “Great Transformation” that are specifically focused on the capitalist version. I will mention six of these.

First, laissez-faire Capitalism rests on a distorted understanding of human nature. Two decades ago, laissez-faire economist Jennifer Roback Morse — then teaching at George Mason University — adopted a two-and-a-half year old boy from a Romanian orphanage. Like most toddlers coming out of that system, the boy had great difficulties performing the simplest tasks, such as making eye-contact or even smiling; the overall problem has been labeled attachment disorder. Morse describes:

…a child who does not care what anyone thinks of him. The disapproval of others does not deter the child from bad behavior because no other person…matters to the child…The child does whatever he thinks he can get away with, no matter the cost to others. He does not monitor his own behavior, so authority figures must constantly be aware of him and watch him. He lies if he thinks it is advantageous to lie…. He shows no regret at hurting another person. [H]e may become a sophisticated manipulator. (Love and Economics: Why the Laissez-Faire Family Doesn’t Work)

Dr. Morse pondered where she had met such a personality before? And then it hit her, “Why, it is homo economicus,” the rational, calculating, economic man of libertarian theory whose “actions are governed by the self-interested calculations of costs and benefits.”

Even if she might exaggerate a bit here, the true conservative holds that the “economic man” of classical liberal theory is one-dimensional, woefully abstract, and a completely inadequate model of human possibility.

Second, despite claims to the contrary, the spread of capitalism has depended on forced centralization and the power of the modern state for its effective operation. As Karl Polanyi has argued, there is nothing “natural” about laissez-faire. Rather, “far from doing away with the need for [state] control, regulation, and interventions, [laissez-faire capitalism] enormously increased their range.” Contrary to myth, the liberal market system of the 19^th Century  required “an enormous increased in the administrative functions of the state.” A central bureaucracy, backed by an efficient “minister of the police,” was needed to standardize weights and measures, destroy local restraints on trade, enforce contracts, protect shipping, collect debts, and guarantee an open labor market. This unitary market so used the law to crush local diversity and local economies. [The Great Transformation]

In practice, the modern administrative state and the capitalist economy actually grew in tandem, each feeding on the other. As economist Keith Rankin summarizes: “The tyranny of the self-regulating market can only become the central organizing mechanism if it is intentionally imposed on society by a government…and can only survive for any length of time if such a government resists the spontaneous human impulse toward protection.”

Third, capitalism undermines true economic liberty and democracy. Concentrations of economic power, be they personal or corporate, inevitably buy political power. This used to come through simple bribes; today these entities buy political power through “bundled” campaign donations, the threat of negative advertising, and the promise to elected officials or state regulators of lucrative future employment. Capitalist enterprises gain, in turn, no-bid contracts, valued tax breaks, barriers to entry for potential rivals, and indirect control over regulatory processes, so that they favor the big firms and penalize the little ones. Put another way, in the real world, capitalism invariably nurtures crony capitalism, corrupting markets and the democratic process.

Fourth, modern laissez-faire capitalism thrives by embracing and promoting the deadly sins. As defined by Christian theologians, the seven deadly sins are wrath, greed, sloth, pride, lust, envy, and gluttony. I will grant that capitalism makes little, if any, use of wrath. But virtually the whole of the current consumer economy rests on the clever manipulation of greed, sloth, pride, lust, envy, and gluttony. Where would the “Mad Men” of contemporary Madison Avenue be without them? Such advertising may raise the Gross National Product somewhat, yet the sins behind it remain, corrupting the character of individuals and the culture as a whole.

Fifth, capitalism undermines natural human bonds and wages a relentless war against tradition. Economist Joseph Schumpeter viewed capitalism as an evolutionary system, one full of nervous energy, one that could leave nothing untouched and changed. This was and is the process of “Creative Destruction,” — his phrase — which “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” [Capitalism, Socialism & Democracy]

Capitalism also excels in leveling natural institutions — most notably, the family itself. Writing in the 1930s, Schumpeter could point to data showing that marriage, family life, and parenthood meant ever less to men and women. Tumbling martial birthrates and “the proportion of marriage that produce no children or only one child” were the clearest signs of this revolution in values. This revolution derived, he said, from capitalism’s “rationalization of everything in life,” the embrace by persons in the capitalist era of an “inarticulate system of cost accounting” that exposed “the heavy personal sacrifices that family ties and especially parenthood entail under modern conditions.” This sharp decline in a desire for children left already functionless homes with even less value.

“Traditions” too, are transformed by capitalism into commodities. In place of neighborhoods and villages governed by a healthy respect for the struggles, sacrifices, and wisdom of real people who had come before, Capitalism produces “faux or fake traditions.” In place of a real Main Street in a vital small town, for example you have the Disney World version of Main Street: weirdly perfect in superficial ways; plastic and false in its essence.

Sixth, Capitalism’s relentless energy finally comes to rest, not in a regime of liberty, but in what British essayist Hilaire Belloc called “The Servile State,” a genial new form of slavery. He saw advanced capitalist society evolving into two classes. The once-vital middle class vanished; only a relatively small number of free citizens remained, those who owned productive property and the financial instruments of the great banks. They were paired with a large, propertyless majority who only worked for wages. The Servile State emerged as the ownership class, the dependent class, and the government converged around the goal of security. The state secured the property rights, profits, rents, and interest income of the owners; it also guaranteed security in subsistence for the propertyless unfree. They gained a minimum wage, workman’s compensation and unemployment insurance, and means tested welfare benefits which solidified their dependent status. Importantly, they also gained access to a flood of cheap consumer goods; and indeed, many would be happy with the exchange of their liberty for food stamps and the modern bric-a-brac of Walmart.

THE HUMANE ECONOMY

So, what is the alternative? Here, I lay out the argument of Wilhelm Roepke, advocate of the Humane Economy.

One foundation of his economic framework was Christian. A descendant of German Lutheran pastors, Roepke held to that concept which “makes man the image of God whom it is sinful to use as a means” and who holds inestimable value as a human being.” In place of homo economicus, he pointed to homo religiosus, religious man, fallen and redeemed.

A second foundation was Roepke’s devotion to a true free market. He argued that the idea of liberty had appeared uniquely in Christian Europe, and “that only a free economy is in accordance with man’s [spiritual] freedom and with the political and social structures…that safeguard it.”

Roepke’s third foundation for his economic views was the natural family. The true human being was not a radical individual, but rather someone embedded in natural social structures. Roepke held that the family, along with religion, did not exist for the state, but was “pre-statal, or even supra-statal.” Family life was “natural and free” and the “well ordered house” served as the very foundation of civilization. Rooted in monogamous marriage, the family was “the original and imperishable basis of every higher community.” The self-sufficient, autonomous family also stood first “in opposition to the arbitrary tendencies of the state.”

Let us examine in more detail the family nature of this Humane Economy. Emerging form the Great War in 1918, Roepke found himself engaged in an intellectual battle on two fronts. As he later reported: “I sided with the socialists in their rejection of capitalism, and with the adherents of capitalism in their rejection of socialism.” By capitalism, Roepke did not mean the free market. Rather, the term “capitalism” embodied for him “the distorted and soiled form” which the market economy assumed in the period between 1840 and 1914, the reign of Manchester Liberalism. The liberal quest for economic liberty had gotten off track in this era, he asserted, producing effects that would pave the way to socialist collectivism; specifically:

…the increasing mechanization and proletarization, the agglomeration and centralization, the growing dominance of the bureaucratic machinery over men, monopolization, the destruction of independent livelihoods,…and the dissolution of natural ties (the family, the neighborhood, professional solidarity, and others).

The real task facing the modern economist, Roepke said, was to eliminate “the sterile alternative” between a return to 19^th Century laissez-faire and 20^th Century collectivism. The needed “free economic constitution,” as he phrased it, would embrace certain basics: the market, competition, private initiative, a free price structure and free choice of consumption.” At the same time, this free economic constitution also would accept the necessity of limits in these areas, some of which I will describe a little later. Roepke praised the true market economy as the only system “which releases the full activity of man so natural to him while, at the same time, [curbing] his hidden tigerish tendencies which, unfortunately, are no less natural to him.” A system of free economic competition alone could deliver “discipline, hard work, decency, harmony, balance and a just relation between performance and payment.” It was also the only system compatible with protection of the free personality, which offered men and women the liberty to tackle challenges in the domains of culture, the intellect, and religion.

All the same, a true free market economy was not easy to achieve. As Roepke explained, “it is an artistic construction and an edifice of civilization which has this in common with political democracy: it demands and presupposes…the most strenuous efforts.” Among other needs, the truly free market required a “high degrees of business ethics” that could, in practice, only be provided by religion, together with “a state ready to protect competition.” Looking to the failures of the 19^th Century, Roepke was relentless in exposing the “sins” of monopoly, including:

Privileges, exploitation…the blocking of capital, the concentration of power, industrial feudalism, the restriction of supply and production, the creation of chronic unemployment, the rise of living costs, and the widening of social differences, lack of economic discipline, [and] the transformation of industry into an exclusive club, which refuses to accept any new member.

He favored legal devices such as the Sherman Anti-Trust Act found in America to protect competition from these disorders.

Roepke was also an enthusiastic champion of international commerce. A healthy economy, he insisted, “does not place collectivist shackles on foreign trade.” Efforts to build high tariff walls, he believed, actually “impoverished” small-scale producers. He consistently called for “a liberal and multilateral form of world trade with tolerable tariffs, most-favored-nation clauses, the policy of open door, the gold standard, and the elimination of closed compulsory [trading] blocks.”

The restoration of private property was also central to Roepke’s vision. The true antithesis or alternative to socialist or collectivized man was the property holder. As Roepke explained, competition was only one of the pillars of a free economy. The other was personal and familial “self-sufficiency.” Accordingly, expansion of the sphere of competition should be balance by also enlarging what he called “the sphere of marketless self-sufficiency.” This meant “the restoration of property for the masses,” a “lengthy and circumspect” program that would discourage the accumulation of big properties, and use “progressive death duties” to break up large estates, and redistribute land to propertyless families on favorable terms. As Roepke wrote: “the industrial worker…can and ought to become at least the proprietor of his own residence and garden…which would provide him with produce from the land.” This alone would render each family “independent of the tricks of the market with its wage and price complexities and its business fluctuation.”

Indeed, Roepke emphasized the transformative power of the private garden. As he wrote, the keeping of a family garden “was not only ‘the purest of human pleasures’ but also offered the indispensable natural foundation for family life and the upbringing of children.” In praising the “Magnetism of the Garden,” he told the story of a friend who was showing the family gardens of several workers to a “dogmatic old-time liberal;” some think this was Ludwig von Mises. In any cause, Roepke continued: “on seeing these happy people spending their free evenings in their gardens,” the laissez-faire liberal “could think of nothing better than the cool remark this was an irrational form of vegetable production.” Roepke retorted: “He could not get it into his head that it was a very rational form of ‘happiness production’ which surely is what matters most.”

Still, Roepke acknowledged that it was not certain “that people really want to possess property.” Actually, “to hold” land presupposed much more: “frugality, the capacity to weigh up the present and the future, a sense of continuity and preservation, the will to independence, [and] an outstanding family feeling.”

The necessary task, he said, was broader still: a “deproletarization” that would take industrial workers who lacked roots in “home, property, environment, family and occupation” and transform them into free men. This meant, in Roepke’s mind, “rendering the working and living conditions of the industrial worker as similar to the positive aspects of the life of the peasant [in our language, the family farmer] as possible.” Beyond his praise for family garden homes, the economist celebrated businesses like Switzerland’s Bally Shoe Company which actively assisted its workers in acquiring houses and land and supported their small agricultural endeavors with plowing services, fertilizers, locally adapted seeds, and special animal stock. All of these initiatives were designed, Roepke said, “to save [these families] from their proletarian existence.”

To heal the distortions of human life wrought by 19^th Century laissez-faire Capitalism, Roepke even sought to undo — in some degree — the industrial revolution. Writing in The Social Crisis of Our Time, he called for nothing less than the “drastic decentralization of cities and industries, [and] the restoration of some more ‘natural order’.” He labeled the modern big city a “monstrous abnormality,” a “pathological degeneracy” that devitalized human existence, adding: “the puling down of this product of modern civilization is one of the most important aims of social reform.” Relative to the decentralization of industry, he urged that “the artisan and the small trader” receive “all the well-planned assistance that is possible.” He also saw promise in the rise of the “tertiary,” or service sector. Moreover, Roepke believed that recent technological advances — such as electric motors, the internal combustion engine, and compact machine tools — lent new competitive advantages to small enterprises. Anticipating Prairie Home Companion’s Garrison Keillor (who has said that you buy local products and pay a small premium at Ralph’s Pretty Good Grocery in Lake Wobegon instead of at the Mall in St. Cloud, because Ralph is your neighbor), Roepke urged that consumers “should not shrink from the sacrifice of a few cents in order to carry out an economic policy of their own and support [local] artisans to the best of their ability and for the good of the community.”

This process of “deproletarization” also meant restoration of a peasantry: that is, a country side of small family farms. Roepke called such farm families “the very cornerstone of every healthy social structure” and “the backbone of a healthy nation.” He continued: “A [family farmer] who is unburdened by debt and has an adequate holding is the freest and most independent man among us.” This household also showed “that a type of a family is possible which gives each member a productive function and thus becomes a community for life, solving all problems of education and age groups in a natural manner.” Given these qualities, Roepke held that “a particularly high degree of far-sighted, protective, directive, regulating and balancing intervention [by the state in agriculture] is not only defensible, but even mandatory.” He pointed with particular admiration to the relatively advanced family-farming systems then found in Switzerland, Scandinavia, Holland, Belgium, and France, and he looked with particular hope to the prospects for specialized production in dairy, eggs, meats, fruits, and vegetables.

Another component of the Humane Economy would be a limited, but real social security system. Roepke did condemn the cradle-to-grave approach of Great Britain and Scandinavia, where “a large part of private income is continually being fed into the pumping station of the welfare state and redistributed by the state, with considerable wastage in the process.” He stressed the corrupting effects on the broader economy of this “everything in one pot, everything out of one pot” scheme, including the suppression of capital investment, the loss of individual initiative, and inflation.” Moreover, such a system was like “a powerful machine that has neither brakes nor reverse gear,” ever encroaching “upon the area of self-providence and mutual aid” so that “the capacity [and willingness] to provide for oneself and for members of one’s family …diminishes.”

All the same, Roepke said that there was a need for “a certain minimum of compulsory state institutions for social security.” There must “naturally be room,” he explained, for public old-age pensions, health and accident insurance, widow’s benefits, and unemployment relief in a “sound…system in a free society.” The imperative was to keep the scheme limited, providing only a floor of support, and no more. He had special praise for the Swiss and American social security systems, circa 1960, which recognized and defended these necessary limits.

Roepke called his whole program a “Third Way,” one which would reconcile “the immense advantages of the free market economy with the claims of social justice, stability, dispersal of power, [and] fairness.” This program favored “the ownership of small-and-medium-sized properties, independent farming, and decentralization of industrial areas, the restoration of the dignity and meaning of work, the reanimation of professional pride and…ethics, [and] the promotion of community solidarity.” This approach also sought “the organic building-up of society from natural and neighborly communities…starting with the family through parish and county to nation.” Alone, this third way rendered “possible a healthy family life and a non-artificial manner of bringing up children.” Indeed, “simple, natural happiness” would come from placing humans “in the true community that begins in the family” and exists “in harmony with nature.”

That is the Humane Economy, held dear by true conservatives.