Distributism and Economic Justice
Hilaire Belloc is considered a distributist
Distributism is a term commonly associated with Catholic economic theory. It seeks economic justice by promoting the widest distribution of property to the largest number of people possible. Distributism also relates to the principle of subsidiarity, which means the greatest responsibility to the lowest possible level of society. Distributism seeks to provide everyone with the means of shaping their own welfare and economic destiny.
Distributism is a form of Economic Justice the Opposite of Concentration of Wealth and Redistribution
Distributism, in its widest sense, could also apply to government and to knowledge. With respect to government, it would mean that political power is distributed widely throughout the society. The US founders championed this principle and established a constitution for the purpose of distributing and protecting the distribution of political power to all citizens. With respect to knowledge, this would mean that knowledge is distributed widely. The principle of transparency, widespread education of children, and access to knowledge through publications, books, or the internet is important for the distribution of knowledge. Distribution of power, wealth, and knowledge are all important for underpinning a republican form of democracy.
Because distributism is opposed to concentration, it is opposed to both laissez-faire capitalism and communism. In the case of laissez-faire capitalism, capital accumulates in the hands of a few oligarchs and financial institutions. In the case of communism, capital is concentrated in the power of the state and is sometimes referred to as state capitalism. The popularized idea that “capitalism” is the basis of Western society is too vague to be meaningful. Capital simply means the resources available to produce something. Laissez-faire capitalism and communism are thus two versions of the same thing, concentrated capital. In both cases, only a few elites control the capital of an economy, and thus the economic destinies of all the citizens who belong to that economy.
Distributism is also opposed to redistribution, a popular notion in modern welfare states that is a variation on communism. Like communism, capital is accumulated in concentrations by government and then redistributed by law. However, redistribution by government force is a form of theft and violence, and its control is still concentrated in the hands of a few, for those who are taxed are only partially able to determine their own economic destiny. For the most part, political redistribution is a method of buying votes and has very little to do with true economic justice. Further, this form of governance has proven unsustainable because it creates ever-increasing number of state dependents and ever-fewer viable businesses and taxpayers.
Distributism, with its roots in agrarian economies, has been often related to land and property. Some distributists think that “capitalism” is opposed to “distributism.” I believe this is because they make the popular association of “capitalism” with laissez-faire capitalism, which is a form of economic anarchy that leads to concentrations of capital. However, since capital, by definition, refers to the resources available to produce something of value it would be more correct to develop a theory of distributist capitalism, opposed to both laissez-faire capitalism and state capitalism. This means that instead of the widest distribution of land to people, distributists should seek the widest distribution of capital to people. Land is just one form of capital. There are other forms of capital, including natural resources, money, and “human capital”— the know-how and skill to produce something.
Distributism and Keynesianism
John Maynard Keynes has been revered by Western social planners
Both distributists and Keynesian economists share the idea that government can shape social policy through tax structures and incentives. Keynesian theory has to be broken down into two forms: redistributionism and distributism. Keynesian redistributionism, for example personal or corporate welfare payments or stimulus plans, requires concentrated capital in the hands of the government that it can hand out to alter the distribution of capital based on the ideals of government elite. Keynesian distributism, like the exemption of charitable donations, home mortgage interest, and medical savings account contributions allows individuals to keep more of their own capital and does not require any government collection or contribution.
Therefore Keynesianism, like capitalism, is an economic term insufficiently analyzed from a distributist perspective. It has a “bad” and a “good” form, from the standpoint of whether a particular government policy leads to widely distributed wealth or concentrations.
The good form of Keynesianism does not rely on printing money, tax collection, government borrowing, or other behavior that leads to the bankruptcy of the government, since it does not require any money to flow into government coffers. The bad form, however, is what we have most often witnessed in Washington since the federal income tax was initiated in 1913, creating a huge pool of federal money that could be used as those who controlled it saw fit. Generally, this bad form has fostered political corruption and both personal and corporation dependency—the opposite of liberty.
Distributism and Economic Competition
Distributism is generally compatible with Adam Smith’s theory of economic competition and the working of an “invisible hand,” whereas laissez-faire capitalism is not. This is because in a climate of pure competition there are an infinite number of producers and consumers. Below is a list of the requirements of pure competition:
7 Principles of a Perfectly Competitive Market[i]—From Wayne Miller
- Numerous buyers and sellers, none of which have a substantial share of the market.
- Buyers and sellers must be able to freely enter and leave the market.
- Each buyer and seller should have perfect knowledge of what other buyers and sellers are doing (transparency).
- Goods need to be comparable to one another.
- Costs and benefits are borne entirely by buyers and sellers.
- All persons are utility maximizers.
- No external parties should be setting prices.
In pure competition there are no large profits, because in a competitive market if someone is making a large profit, a competitor will enter the market and sell to product or service for less, until he makes just enough to cover his living expenses. This condition approximately applied in early US history because nearly all farms and businesses were family run and there were numerous families competing on an open market. In such a competitive environment income is thus distributed to a wide number of competitors.
It should be clear from the above discussion that government intervention, at least in what we referred to as “bad Keynesianism” that creates favorites and distorts markets and often eliminates pure competition, helping to set up monopolies or oligopolies.
F.A. Hayek
F.A. Hayek
In The Road to Serfdom, economist F.A. Hayek argued that, if it has a role to play in the economy, a government should act as a referee to encourage the most economic competition possible. Hayek’s view, unlike the popular forms of libertarianism and Austrian school economics, is a form of distributism. Many people tend to lump him together with Ludwig von Mises, because they both belonged to the Austrian school of economics and supported market competition. However, a careful reading Professor Hayek will show that he has more in common with Adam Smith than with modern libertarians.
I have attended several economic conferences where large oil and pharmaceutical companies promote the theories of von Mises as though he were a god, and you will seldom hear spokespersons for such corporations speak of the role of government as to encourage competition. They refer to a “free market” as one that is absent of all restraint and governance, the economic equivalent of Hobbes’ theory that the state of nature is “a state of war,” a state of anarchy. This is because such large enterprises know that with their enormous size, in a state of anarchy, they have a better chance of winning monopoly or semi-monopoly control of a market, eliminate their competition, so they can control prices, and increase profits.
However, Hayek believed that an economy requires governance, just as I wrote in Life, Liberty, and the Pursuit of Happiness, Version 4.0. Governance is not necessarily intervention, but the enforcement of fair rules of play, ensuring there is always a level playing field. In a Hayekian society there would thus not be the disproportionate concentrations of wealth that come with laissez-faire capitalism, state capitalism, or government redistributionism. Rather, there would be the natural distribution of wealth and economic productivity that comes with pure competition.
The Differential Tax
A recent article published in The Distributist Review, posted in the name of Hilaire Belloc (1870-1953), presents an argument for a differential tax. This tax was envisioned to tax wealthier people and concentrations of wealth and not tax lower income wage earners as much. A differential tax can come in many forms. As an income tax, a differential tax is not much different than a graduated income tax. However, Belloc also envisioned the application of a differential tax to any type of tax (e.g. tax big billboard advertisements at a higher rate than small billboard advertisements). The theory behind the differential tax is that it will tax concentrations of capital and naturally distribute capital more widely throughout the economy. It might be a bit like taxing heavier trucks more, and preventing those too big for the road to support from driving on it.
The goal of using tax policy to distribute capital without government handouts is laudable, but it must be used within the framework of pure competition. The Hayekian idea of a refereed economy should take precedent over any tax framework, because the market forces distribute capital widely. Not all forms of distributist taxes will lead to the greatest possible spread of capital across a population. Like communist societies, tax policies that are distributist but quelch competition will create a form of economic justice that has been described as the equal distribution of poverty.
Thus, for example, the idea of a distributist income tax really makes no sense as a tax on labor in a globalized economy. This is because any tax on US labor will raise the price of goods on US-made products and cause them to be less competitive on the global market. Such a tax lowers the US GDP and the total amount of capital available for distribution in a particular national economy. The US could, nonetheless, tax passive income, like income on interest and dividends, because these taxes would not affect the competitiveness of an economic enterprise.
Further, it makes more sense to tax consumption of goods on the open market, because taxes on Chinese-made goods and US-made goods would be taxed at the same rate and thus not causing the playing field to be unlevel. This could be compared to a referee requiring all football players to wear helmets. It is a rule that places the same burden on all football players equally, and thereby does not “throw” the game toward one team or another and make a game less competitive. One could, theoretically tax higher-priced, or luxury goods, at a higher rate, thus fostering distributism. And, one could even exempt necessities like groceries and health care from the consumption tax, since all people require these basics just to live.
Originally when the US income tax was begun, there were not to be income taxes assessed on labor. In the Congress in 1913, Representative Borah argued,
After a man pays the tax which he must pay on consumption, then give him a chance to clothe and educate his family and meet the obligations of citizenship and preparation of those dependent upon him for citizenship before you add any additional tax. That is the basis of the exemption, and it is fair and just to all and toward all. [ii]
If the US had an income tax today based on the original arguments of 1913, the exemption would amount to over $200,000 per year, and only people with incomes higher than that amount would pay federal income taxes. That means such an income tax, while still unconstitutional according to the principles of the US founders, would not lead to increased labor cost that would destroy US competitiveness and job loss in a global economy.
While there are distributist reasons to agree with the founders that only states, and not the federal government, should have the authority to levy any income tax, I will not belabor that point here. I believe that the primary goal of this article, which is to set distributism in a framework of both economic justice and prosperity has been made.
[i] Wayne Miller, http://www.youtube.com/watch?v=DZhphhNk1e8
[ii} Cited in Gordon L. Anderson, Life, Liberty and the Pursuit of Happiness, Version 4.0 (St. Paul: Paragon House, 2009), p. 218.
GA,
Thank you for an interesting article on the concept of distributism. It represents a third option in economic order or structure in contrast to central command models and decentralized models. In reality each model has merits in solving specific problems. Environmental issues related to chemical and nuclear pollution are on an international and global scale. These kinds of problems are best handled through a highly centralized international organization. A decentralized model takes into account that there are significant geographic differences with particular advantages. Thus regional farming coupled with adaptive technologies can be highly productive and environmentally sustainable. As it seems the third distributive option is especially important to maximize participation in productive activity and avoid the problem of over concentrations of wealth.
Some types of regulation are needed that balance the benefits of economies of scale, geographic advantages and preserve the idea of maximized participation that takes advantage of universal education and widespread productive skills. Clearly, this is the direction the global community is headed.
Robert, With respect to issues like pollution that can be in a river that makes its way through several states, or air that can blow from one country to the next, or international air traffic, there has to be higher level coordination. In political science it is called studying the appropriate “level of analysis.”
It is very often that out of laziness or dependency, a lower level wants a higher level to its its job. For example, asking the federal government to mow your lawn or pay for your doctor appointment. Or, in reverse, slavery, where a higher authority forces a lower entity to do its bidding on things is really has no business being involved in, e.g. unfunded federal mandates.
It is also very often that out of selfishness, we want to pollute and not take responsibility for how our behavior might impact the health of others. Then we oppose higher level restrictions that are really intended for everyone to live in a clean environment. However, good environmental rules will help “distribute” clean air and water to everyone. Bad rules, from a distributist perspective, include when the government claims ownership of the air and the water. For governments are not known for their ability to care for things very well.
Good social analysis needs to consider the proper level of analysis.
If we look at the three kinds of social organizational levels – centralized, decentralized and distributed – certain principles must be established and maintatined by all parties in the groups. Public norms, values and standard practices are codified. Laws are agreed upon.
Furthermore, individuals who violate the rule of law are subject to reprimand, punishment or expulsion. Unfortunately, the shared understanding, application and enforcement of basic principles, collective norms and virtues has broken down. Consequently, this leads to social disintegration. This kind of disruption has occurred in communist, socialist and market capitalist forms of governance. Social analysis would reveal the essential problem is the disintegration of the collective conscience or social contract. Satirist Mark Twain lamented, ” America has no criminal class except for the Congress.” The road to economic recovery and economic justice must necessarily travel the road paved with universally shared values, moral transparency and legal integrity.
Yes, regardless of the external institutional arrangement that exists, it must be supported by the social conscience. This is what gives a government moral legitimacy.
Modern science and post-modern deconstructionism has has brought into question elements of traditional consciousness in all religious worldviews. But, modern science has failed to properly modify inherited systems, choosing to reject them out of hand with no adequate social consciousness of its own to replace it. This is because science has failed to support many historical lessons learned by collective human society. In this value vacuum, people choose to “do their own thing” because there is no collective consciousness to reprimand them and society breaks down. Thus, there is no moral check on Congress and it becomes a criminal class, to requote Mark Twain.
I believe Distributism is more than just a “3rd way”, but rather a more principled and complete economic theory that will naturally triumph over the other systems due to their “design flaws”. I believe this for three reasons: 1) economics is a humane science, rooted in human institutions and not comparable to the physical sciences. Therefore it must embody some notion of justice within the theory itself, which capitalism does not; 2) equilibrium is not reached in our current economic system because labor is not fairly compensated, creating instability and unsustainability; 3) the family is the true economic unit, not the individual. In the current arrangement, where distributive justice is not factored in the economic equation, government elites take the need for distribution upon themselves in the form of coercive and inefficient “re-distribution” of income. Thus politics becomes the fight for narrow self-interests and money instead of creating an environment for freedom, harmony and the well-being of all.
AJ,
Perhaps you could explain why a central command model or decentralized economic model are ” less principled ?” I’ve taken the position that all three economic organizations have merit depending upon the type of problem – ecological, productive and participatory issues. Of course narrow self centered forces could infect any of the three organizations. What do you mean that (market) capitalism does not have some notion of justice ? The uniform commercial code is supported by the judicial system. Isn’t this a notion of justice found in capitalism as practiced in America ? Finally, what is your notion of fair compensation of labor ? There’re different kinds of labor ( physical vs creative ) and many kinds of compensation – for example, tangible and intangible. Perhaps there should be income ceilings to prevent oligarchies or monopolies. But, I would add that popular celebrities, professional athletes, college professors and corporate executives are over compensated.
Robert, I have to confess that I am basing my comments on John Medaille’s book, “Toward a Truly Free Market”, in which he critiqued the other systems and made the case for Distributism. An essential point I had not considered before is how do we reach an equilibrium, or sustainable economy and culture? Keynesianism became a necessary step in the evolution of capitalism in order to keep stability and full employment. But as we are seeing that course is itself unsustainable and is based on public debt financing and consumer debt. Free markets come the closest to solving this problem, but only distributed ownership and capital will maintain truly free markets, as opposed to increasing centralization. Your question on fair compensation of labor is one that I’m still working to understand technically, but the principle is that labor should be rewarded with a wage that sustains a household. Why? so that a home has enough stability to allow for the nurturing of children of good character who will, in turn, become productive laborers themselves and not dysfunctional and dependent upon the welfare of others. We need contributors. If both parents work 2 or 3 jobs, how can good parenting and child rearing take place? It doesn’t. The real cost of labor must factor in the cost of a stable home. Labor value must be based on more than the utilitarian view of supply and demand, etc. I believe that is where Justice needs to be factored into the economic theories that undergird political policies and the ways we do business (the economic system). On a final note, the problem of “economic rent”, which Gordon also talks about, must be addressed and by limiting it may create an opportunity to level the field as we are suggesting.
Keynesianism could create some micro-adjustments within an overall healthy economy, causing some redistribution or alternative distribution. However, it cannot create economic growth. Governments can prevent growth but they cannot create it. Currently our leaders are pushing “Keynesian” policies to create jobs in a down economy (by trying to stimulate consumption with borrowing). This will not work, and will make the system worse. We have the example already of government trying to stimulate the economy by guaranteeing home loans. That is what made the economy go into recession. Obama will likely argue that we need to borrow more money to stimulate consumption. I will only succeed in creating $100 of debt for every job it creates, thus selling our children into slavery or poverty.
It is important to know the difference between “distribution” and “redistribution.” In distributism government bureaucrats do not touch money, only policies that shape the flow of money in an economy. In redistributionism government officials tax or borrow money and hand it out according to their own plans. This makes to overall economic production in the private economy shrink, and people lose jobs.
The American philosophy behind the tax collection in 1913 looks so positive and progressive, if the purpose was that the the redistribution is achievable and society will benefit, but it is not all about that, theoretically,yes,the thesis which was developed in 1913 was good but practically it is not being implemented in the capitalists world.
The people’s needs are determined by the people themselves not by the governments so, in my view, Keynesian theory fits in the contemporary world.
Governments maintain their existence by providing security and infrastructure – developing conditions that allow for sustainable commerce and social stability. As it seems, security plans are organized centrally, infrastructure can be decentralized, and distributist or subsidiary plans maximize participation and promote economic stability. It is an interpretation of how government can provide for defense, promote the common or aggregate good, and secure the blessings of liberty. In this way the three types of organization are implemented to solve specific problems. Specific problems would require different kinds of economic organization. But, governments have improperly used a wrong type of organizational plan ( central command , decentralized, distributist )for some problems. For example the recent financial crisis was due to a failure of central controls on financial speculation by credit lenders. And a crisis exists in public educational reform due to excessive tax and command structures. It is apparent that government leaders have mistakenly matched the wrong organization structure to solve particular issues.
I hope this theory and alternative becomes much more widely taught and publicized.
It seems to me that this structure also supports the nuclear family, the building block of a healthy society and also creates quite naturally a stronger or additional layer of “checks and Balances” to prevent the over-centralization and control by federalism run amok.
By the self sustainability of more localized groups and geographical areas.
Keep up the good work.