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
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:
- 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.
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.
[ii} Cited in Gordon L. Anderson, Life, Liberty and the Pursuit of Happiness, Version 4.0 (St. Paul: Paragon House, 2009), p. 218.