The Economics of Distributism V: The Practice of Distributism

This is part V of John Medaille's series on the Economics of Distributism. Click here for parts I, II, III, IV. This originally ran on Front Porch Republic and is published here with the permission of the author.

By John Médaille

Somewhere, the Sage hath said, Philosophy is easy; plumbing is hard. The Sage is correct; we should be suspicious of systems that exist only in the mind, but are never seen on the ground. It is only on the ground that they can be tested, and on those grounds alone we should take our stand. It is easy—too easy—to come up with abstract systems which are perfection itself; it is much harder to make them work. The problem with abstract theorizing is that creating theories is a selection process; one must decide what to leave in a what to take out. But one can never know that the right elements have been included without seeing how the system works in practice. Hence, practice alone is the only standard of judgment about social systems.

In Chapter II we noted the failure to Capitalism to live up to its own standards, to deliver what it promises. We noted that it always and everywhere ends up with a statist economy, ever more dependent on government interventions. But such a critique would ring hollow if Distributism did not have its own practice which the capitalist could examine in the same way we have examined capitalism. Fortunately, there are many long-standing examples of distributist economies and practices, and their problems and successes can be examined in as much detail as you like; we can see whether the theory describes an actual practice, and whether the practice works as advertised. Here I will mention only of the more prominent examples, and I invite the reader to examine them in greater detail for himself.

The Mondragón Cooperative Corporation (MCC). Recently, the workers in the Fagor Appliance Factory in Mondragón, Spain, received an 8% cut in pay.1⁠ This is not unusual in such hard economic times. What is unusual is that the workers voted themselves this pay cut. They could do this because the workers are also the owners of the firm. Fagor is part of the Mondragón Cooperative Corporation, a collection of cooperatives in Spain founded over 50 years ago.

The story of this remarkable company begins with a rather remarkable man, Fr. José Maria Arizmendiarrieta, who was assigned in 1941 to the village of Mondragón in the Basque region of Spain. The Basque region had been devastated by the Spanish Civil War (1936-1938); they had supported the losing side and had been singled out by Franco for reprisals. Large numbers of Basque were executed or imprisoned, and poverty and unemployment remained endemic until the 1950’s. In Fr. José’s words, “We lost the Civil War, and we became an occupied region.”2⁠ However, the independent spirit of the Basques proved to be fertile ground for the ideas of Fr. José. He took on the project of alleviating the poverty of the region. For him, the solution lay in the pages of Rerum Novarum, Quadragesimo Anno, and the thinkers who had pondered the principles these encyclicals contained. Property, and its proper use, was central to his thought, as it was to Pope Leo and to Belloc and Chesterton. “Property,” Fr. José wrote, “is valued in so far as it serves as an efficient resource for building responsibility and efficiency in any vision of community life in a decentralized form.”3⁠

The Economics of Distributism IV: Property and the Just Wage

This is part IV of John Medaille's series on the Economics of Distributism. Click here for parts I, II & III. This originally ran on Front Porch Republic and is published here with the permission of the author.

By John Médaille 

Property and the Just Wage

In the last installment, we maintained that the only means to economic equilibrium was the just wage: unless each person gets a fair proportion of the wealth he produces, there will not be enough purchasing power in the mass of men to clear the markets. We noted that in the absence of a just wage, the market will have to rely on non-economic means to achieve equilibrium: charity, government spending, and usury. Therefore we can accurately judge the failure of the just wage—that is, the failure of economic equilibrium—by noting the amount of non-economic means that are required to clear the markets. This leads us to the conclusion that the very size of government is a measure of the failure of economic justice. Indeed, one of the objects of distributism is to cut down on the need for gargantuan government.

At this point, the Austrian or neoclassical economist is likely to object that in order to enforce a just wage, you will need not a smaller but a larger government, one capable of setting the employment contract for each and every workplace. Such an arrangement is likely to abrogate the rights of both parties to freely bargain for a free and just wage. This critique cannot be passed off lightly, because under current conditions, they happen to be correct. However, the “current conditions” are neither necessary nor natural, and while the standard economists are proximately right they are ultimately wrong. But this takes some explanation of the current theory.

The Standard Theory

Without going too deeply into the model, we can note that the standard theory states that in a perfectly competitive, free-market environment, wages will tend to reflect accurately the productivity of both the workers and capital, and that each side would get the wealth it actually produces. The most famous proponent of this theory, called “marginal productivity,” was J. B. Clark, who put it this way,

Where natural laws have their way, the share of income that attaches to any productive function is gauged by the actual product of [that function]. In other words, free competition tends to give labor what labor creates, to capitalists what capitalists create, and to entrepreneurs what the coordinating function creates.¹

The Economics of Distributism III: Equity and Equilibrium

This is part III of John Medaille's series on the Economics of Distributism. Parts I & II can be found here and here. This originally ran on Front Porch Republic and is published here with the permission of the author.

By John Médaille

What Does an Economy Do?

If what we said in the last installment is correct, then the first task of any humane science is to determine what its purpose is. The indispensable requirement for any economic system is that it must provide the material basis for life for a sufficient number of its citizens so that society can continue for another season. In addition, it must provide a sufficient surplus so that society can be re-populated and continue for another generation. If either of these conditions is not met, then society simply disappears and further discussion is unnecessary.

But in addition to the few things that an economy must do, there is a longer list of things it ought to do. For example, an economy ought to provide the material basis of life for as many members of society as possible, and ideally for all members. It ought to provide for a certain level of material comfort and security; it ought to reward work, ingenuity, thrift, and inventiveness; it ought to supply sufficient excess to fund common goods such as the national defense, religious works, education, etc.; it ought to provide the ground for liberty; it ought to provide the ground for social harmony, that is, each citizen ought to be able to believe that his efforts and fairly rewarded, and that no one lives off the efforts of another.

Having a list of things an economy should do implies another list of things it should not do. For example, it should not depend on slavery; it should not deprive work (including the “stored-up” work known as “capital”) of its just rewards; it should not reward sloth, that is, create wealth without work, wealth not based on some productive endeavor; it must not weaken social bounds or encourage class warfare, and so forth. Taken together, these lists of what an economy must do, what it ought to do, and what it ought not to do, provide us with a set of criteria upon which we may make firm judgments about the success or failure of any particular economy, most particularly our own. But I suggest that in addition to these criteria, there is a fundamental measure that sums them all up, something that an economy must do if it is to meet all of these other criteria. This criterion is that it must balance supply and demand; this is the most fundamental measure in any economy. This balance of supply and demand is known as equilibrium, and it can be supplied by either economic or non-economic means.

The Economics of Distributism II: Political Economy as a Science

This is part II of John Medaille's series on the Economics of Distributism. Part I can be found here. This originally ran on Front Porch Republic and is published here with the permission of the author.

By John Médaille 

 

Science, Normative and Positive

 

Some wag somewhere has remarked that economists suffer from “physics envy.” One could certainly make that charge against W. S. Jevons (1835-1882), one of the founders of marginal economics, when he wrote that a “perfect system of statistics … is the only … obstacle in the way of making economics an exact science”; once the statistics have been gathered, the generalization of laws from them “will render economics a science as exact as many of the physical sciences.”¹

More than a century has passed since Jevons wrote these words, and in that time there has been a growth of vast bureaucracies, both public and private, devoted to establishing this “perfect system” of statistics. Yet today economics seems no closer to being an exact science than it was in Jevons’s day. Despite this failure, economic orthodoxy clings to the notion of itself as a positive science. As Milton Friedman puts it, “Positive economics is in principle independent of any particular ethical position or normative judgments.  As [J. N.] Keynes says, it deals with ‘what is,’ not with ‘what ought to be.’”²

Underlying Friedman’s view are two distinctions: a distinction between facts and values (the “is” and the “ought to be” of things), and a corresponding distinction between a “normative” science and a “positive” one, with the former reflecting the world of values and the latter the world of facts. So which kind of science is economics, normative or positive?

The Economics of Distributism, Part I

My recent post concerning John Médaille's book, Toward A Truly Free Market, has sparked a lively discussion concerning Distributism.  I believe the subject is worthy of further examination. With permission from John Médaille I am posting his five part series on Distributism which was originally published on Front Porch Republic.

By John Médaille

Property in the hands of labor is freedom.

Labor in the hands of property is slavery.

–Dmitri Kleiner

Hilaire Belloc

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.

Toward A Truly Free Market: A fine book on Political Economy

Our friends at ISI Books have recently published a very interesting new book entitled Toward A Truly Free Market. Author John Médaille describes the theme of the book this way:

"Economics, or more properly, political economy, cannot be a proper science unless it is a humane science; to be a humane science it must embody some notion of justice, and particularly of distributive justice. Indeed, as a practical matter as well as a theoretical one, there can be no balance between supply and demand without distributive justice; the moral question and the economic question are, in reality, one question."

ISI describes the book thus: "For three decades free-market leaders have tried to reverse longstanding Keynesian economic policies, but have only produced larger government, greater debt, and more centralized economic power. So how can we achieve a truly free-market system, especially at this historical moment when capitalism seems to be in crisis?

The answer, says John C. Médaille, is to stop pretending that economics is something on the order of the physical sciences; it must be a humane science, taking into account crucial social contexts. Toward a Truly Free Market argues that any attempt to divorce economic equilibrium from economic equity will lead to an unbalanced economy—one that falls either to ruin or to ruinous government attempts to redress the balance.

Médaille makes a refreshingly clear case for the economic theory—and practice—known as distributism. Unlike many of his fellow distributists, who argue primarily from moral terms, Médaille enters the economic debate on purely economic terms. Toward a Truly Free Market shows exactly how to end the bailouts, reduce government budgets, reform the tax code, fix the health-care system, and much more."

John Médaille's approach is very much in the tradition of Chesteron, Belloc and Fr. McNabb. He has a fresh and expanded approach to their views of political economy which deserves our attention. The passage from Toward A Truly Free Market below certainly describes our current economic crisis.

Economic equilibrium cannot be divorced from economic equity, and the attempt to do so will lose both equity and equilibrium; the economy will be unable to balance itself, and so will either fall to ruin, or to ruinous government attempts to redress the balance.

ISI also posted an excellent short interview with the author of "Toward A Truly Free Market" on ISI Books.