05 December, 2013

Distributism Basics: Distributism vs. Capitalism

"Distributism is just like capitalism, except that we differ on the nature of man, the purpose of economic activity, usury, the maximization of token wealth, the role and legitimate exercise of the state, empirical economics, the meaning of subsidiarity, subordination of economics to the higher sciences, our ends, our means, what money is, what wealth is, what a free market is, production and consumption, regulation, free trade,
the moral and divine law in the social and economic order,
and, yes, what liberty means."
- Richard Aleman

In order to discuss the differences between distributism and capitalism, we must first discuss what capitalism is. I know that many people assume they already know what capitalism is, but I contend that they are only partly correct in their knowledge. I think what they believe to be capitalism is part of it, but capitalism also includes specific things they might not consider as part of it, and with which they may actually disagree.

For many people, the idea of capitalism does not go much farther than the right to private property and free market competition. It is when you get into more specific details of these and other aspects of capitalism that the differences between what people think it is (or should be) and what it actually is come to light. Are there reasonable limits to the use of private property? Is a market truly free if monopolies exist? Should local government be able to prevent a store like Wal-Mart from opening in the community in order to preserve the existing local businesses? It is in the details where you can find great differences of opinion among self-professed capitalists.

Have we really considered what truly defines capitalism? What sets it apart from the economic systems that preceded it? What sets it apart from socialism? What sets it apart from distributism? Capitalism is that economic system where the private ownership of productive capital is separated from the work on that capital, and where the laws not only facilitate, but give advantage to that separation. Many will disagree with the last part of that definition, but the reality is that capitalism has never existed without the use of laws to give advantage to certain business interests. Whether we are discussing protectionist tariffs, or the seizure of the commons to give them to already wealthy merchant lords, or the forced disbanding of the guilds, the manipulation and use of the power of government has always been an integral part of capitalism.

We need to realize that there is no such thing as an economic society without political involvement in economics. Utopian socialism had to morph into scientific socialism. Even those capitalists who advocate a "minimalist" view of the role of government in economics promote whatever involvement they consider to be the most advantageous to businesses, whether it is the establishment of government protections in the form of patents or copyrights, or laws preventing fraud, or other government enforced protections. While distributism promotes subsidiarity, that really just keeps government involvement to as local a level as practical, based on our belief that this will best protect economic freedom by allowing local citizens to have a real and effective voice.

Just as we say that a society is socialist when a determining amount of its productive capital is legally barred from being privately owned, a society is capitalist when a determining amount of its productive capital is privately owned by people who do not do the work due to laws enabling and encouraging the separation of ownership and work. The "determining amount" is not a hard and fast rule. It is that amount which would generally be accepted as establishing the tone or mode of the society. The separation of private ownership from work is at the root of various aspects of capitalism: usury, free trade, the combative relationship between labor and owners, the stock market, the consolidation of wealth resulting in monopolies and the consequent anti-trust issues.

In his 1912 book, The Servile State, Hilaire Belloc wrote that capitalism was moving toward two inevitable ends which he termed the Servile State and the Distributive (or Proprietary) State. While scientific socialism is very close to what he described as a Servile State, Belloc didn't think it likely that societies would choose the socialist route because of the extreme disruption to economic life it entailed. While he may have been wrong about some societies being willing to try the socialist route, he was clearly correct about the economic disruption.

What Belloc considered more likely than the move toward socialism was modifications to capitalism which would preserve the essence of the prevailing capitalist structure - the majority of productive capital controlled by a minority of wealthy owners - but would implement government imposed protections against the economic injustices the workers were facing at the time. These protections for the workers were not without their own obligations, however, in order for the workers to get them they would be legally compelled to work for the owners. This is the essence of what he called the Servile State.

This legal requirement would not necessarily involve the government dictating where individual people would work. The workers may remain free to move from employer to employer in a Servile State, but the legal protections to provide the needs of the people, both while they worked and in times when they didn't, would be based on the obligation of the masses to work for the few owners of large concentrations of productive property. Even if small proprietors remained, the laws would favor the large proprietors, protecting the concentration of ownership. This would effectively compel large numbers of workers to work for the large proprietors. If this were done correctly, Belloc maintained, capitalism would become stable. The majority of the large proprietors would welcome the restrictions and obligations imposed on them because it would guarantee that they would maintain their wealth and status. The majority of the workers would welcome the obligation to work for the large proprietors because it came with promises that the deplorable conditions in which they lived would be greatly improved. Belloc stated that because capitalism had already concentrated so much wealth into the hands of a few large proprietors, society would find it much easier, much less disruptive to move toward a Servile State than either the Distributive State he advocated or the socialist collective state he did not.

In the same year that Belloc published The Servile State, John Maynard Keynes proposed a radical modification of the prevailing capitalist system which had resulted in the masses of workers living in poverty and wretched conditions. It is an unfortunate truth of capitalism that, because it tends to transfer wealth from the masses to the few proprietors, the workers - who are also the overwhelming majority of the customers - cease having enough money to buy. As the workers struggled just to have a place in which to live and food to eat, they necessarily stopped buying other things. To solve this situation, Keynes proposed a system where the government would tax the large proprietors to fund programs to assist the workers. The idea was that transferring enough wealth from the large proprietors back to the workers would relieve them of the worries of having to choose between the basic necessities of life and purchasing other products necessary to keep capitalism functioning. The result of these changes was that economic society became more stable, there were still disruptions, but they became less frequent. Belloc was at least partly correct in his predictions.

It needs to be understood that the Keynesian system is not a recipe for socialism. Both utopian and scientific socialism removed at least the vast majority of private ownership. Keynes' system not only maintains private ownership, but keeps it in the hands of the few large proprietors. In fact, the Keynesian plan is completely dependent on the continued existence of a very wealthy class of private owners. This is important to understand because some advocates of the Austrian School say that more government involvement in economics is actually socialism. In reality, the Keynesian plan was not one for the establishment of a socialist egalitarian society. The rhetoric behind all of these plans is nothing more than an extension of the Keynsian idea of transferring enough wealth from the haves to the have-nots because they believe that is what will keep the economy working. 

The disagreement between the Austrians and the Keynesians ultimately boils down to the extent to which government should be involved in economic matters. The Austrians say they want government out of economics, but they really mean they only want government involved in ways they believe will protect and promote business interests. The Keynesians want government and business to work hand in hand, even if they are sometimes at odds over particular points, to try and maintain the maximization of corporate profit while not impoverishing the workers. The Austrians would argue that Keynesian economics is not capitalism because the government interferes in the free market. There is an element of truth to the argument. The Keynesian system is truly a movement away from capitalism to the Servile State. The question is whether the move has gone far enough at this point to say that we have truly moved from one to the other. The Servile State is neither capitalism nor socialism, but will ultimately result in a totalitarian plutocratic state just like socialism ultimately results in a totalitarian collectivist state. Capitalism on its own results in a plutocratic state that may not be totalitarian, but will be just as miserable for the majority of those who live in it.

Just as I don't believe Adam Smith envisioned the atrocities capitalism enabled, I don't think that Keynes necessarily envisioned everything that his system, under which we now live, has become, but Belloc did. What Keynes really accomplished, even if he didn't intend to do so, was a workable plan for the gradual and peaceful implementation of Belloc's Servile State. Today's advocates of the Austrian School are loudly calling for a return to the earlier, "truer," capitalism. We must ask, however, exactly how different is the current Austrian view from the policies of the 19th Century? Even if we disagree with what unions have become as political entities, have we forgotten why they were formed? Have we forgotten why the child labor laws had to be passed over the objections of big business? 

Have we forgotten how difficult it was to actually get those laws passed due to the power that big business had over government? I don't claim that we would return immediately to the injustices of those days, but what does Austrian School propose that would prevent those types of things from eventually happening again? (And is that really consistent with what they call true capitalism?)

What, then, is the difference between capitalism and distributism? Capitalism is that economic system where the private ownership of productive capital is separated from the work on that capital. Distributism is that economic system where the private ownership of productive capital is joined to the work on that capital. When the determining amount of privately owned productive capital is worked on by the owners of that capital, the society is distributist.

This is where comparing distributism and capitalism can get confusing for some people. Capitalism does not reject the small proprietor who works on his own property. Capitalism does not reject worker-owned cooperatives. Therefore, the forms of businesses and ownership promoted by distributists are perfectly acceptable to capitalists. The difference is the acceptance by capitalists of the concentration of ownership into the hands of a few extremely wealthy owners. The difference is the foundational philosophical views that result in capitalists accepting, and distributist rejecting, things like usury, anti-competitive spending, monopoly, transactions where only one side is protected from risk, and the view that economics is a "natural" science like chemistry or physics to which things like ethics and justice don't necessarily apply.

It needs to be admitted that most people who consider themselves capitalists would argue that everyone should act in an ethical way in business as well as always. The point is that ethics has nothing to do with what capitalists say is the science of economics. The capitalist's idea of the science of economics would allow him to say, "It's not personal, it's business." The distributist's view of the science of economics would not allow him to say that. I'll write more about that in the next article of this series.

It is my opinion that the average person who considers himself a capitalist, the small proprietor, the typical employee, unknowingly agrees more with the economic views of distributism than the true nature of capitalism. They would rightly argue that capitalism can be ethical and just. What they don't realize is that there is nothing inherent in capitalism, nothing built into it at a philosophical level, to ensure or even promote ethical business practices. Sure there are laws against fraud and false advertising, but trying to otherwise ensure ethics in business is a separate issue that may (or may not) be applied by individual businessmen or corporations. In fact, ethics is only considered to be "good business sense" rather than part of the science of economics itself. 

Another difference between capitalism and distributism is the ability for a community to influence and protect its local economy. In general, distributism accepts the idea that local businesses should be self-governing within guild structures. The structures need to be set up so that businesses are answerable to the local community they serve. Local communities can require local residency for running a business within its jurisdiction, but not be able to prevent tradesmen from bringing in goods produced in other areas. Capitalism rejects such things as interfering with what they call free market competition. 

The capitalists idea of economics allows him to say that greed is good - not just bettering ones own position, but actively trying to get all that he can for himself (without fraud). Distributism has nothing against someone trying to better his own position, but still considers greed to be a vice. Distributism does not pretend to propose a system where there will be no wealthy and no poor. The idea is a Utopian absurdity. However, if the private ownership of productive property were wide spread, the disparity between the wealthy and middle classes, and between the middle and poor classes, would be less.

All of this is based on the idea that a great multitude of small, privately owned businesses is better for society, results in greater economic independence and freedom for the average citizen, than having large multi-national corporations employing tens of thousands of non-owner workers. The result of distributism will be more providers of all goods and services, which will increase employment options and better working conditions for workers, greater variety and more choice for customers, more acceptance by business of social responsibility to the community, and more stability in the local economy because more economic activity will circulate within a community rather than sending money out to distant corporate headquarters.

I agree with Belloc that moving to a distributist society involves a great change for that society. The social and economic changes would need to be worked out and implemented carefully because they are so radically different than what we currently have, so different than what we have been taught is the only just and workable system in the world. Beyond that, however, is the fact that distributism is based on a different philosophical view of economics than capitalism. For the distributist, economics is about families being able to provide for their needs and wants. This is the foundational principle that underlies everything else about economics, not the constant increase of the GDP, the price of shares on the stock exchanges, or being able to report record profits. The foundation of a healthy and stable national economy is for the various local economies to be healthy and stable. The collective resilience of local economies is a more accurate barometer of national economic health than the stock market.

Other articles in this series:

1 - A Brief Introduction

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