Property in the hands of labor is freedom.
Labor in the hands of property is slavery.
–Dmitri Kleiner

By John Médaille
http://www.frontporchrepublic.com/?p=3149

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.