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Ever since capitalism made its appearance in the late Middle Ages and came to dominate both production and politics in the late 18th century, there has been a vigorous debate on just what the nature of capitalism is. Central to these debates has been the question of capitalism’s relationship to the state, and particularly the question of whether capitalism was an enemy or a child of the state. There have been no shortage of great names in this debate: Smith, Marx, Mill, Mises and many other great minds weighed-in with weighty tomes on the topic. Yet I do believe that the honor of formulating the question in the most succinct and elegant terms possible must go to Sorin Cucerai in his brief but powerful essay, “The Fear of Capitalism and One of its Sources,” in the May issue of Idei in Dialog. Mr. Cucerai is a libertarian philosopher in Romania, and his article is important because it is the most candid look at capitalism I have ever seen from an Austrian libertarian. [Note: the article is in Romanian, but for anyone who wants to read an English translation, please email me.] In but a few pages, and in a few powerful phrases, Mr. Cucerai captures the essence of capitalism and its relationship with the state. Sorin’s arguments are directed primarily at the “anarcho-libertarians” who, like the Marxists, would have a “withering away of the state.” However, the historical reality is that under “conservative” regimes the state grows as fast—or even faster—then it does under liberal and social democratic regimes. Indeed, only the communists could grow the state faster than the conservatives, and they grew the state until it collapsed of its own weight, a feat which the conservatives in America are trying to duplicate, and may yet succeed Certainly something odd is going on here. An historical reality that pervasive and powerful cannot be overlooked or ignored in the name of ideology. However, it must be noted that in “defending” capitalism, Mr. Cucerai raises questions that challenge its very legitimacy. Indeed, Marx in his attacks on capitalism never said anything as negative about that system as Mr. Cucerai does in its “defense.” It is important to understand Mr. Cucerai’s argument in its elegant simplicity. I summarize it as follows:

  1. Men naturally seek direct access to the means of subsistence, usually in the form of their own land or tools.
  2. This access makes a man less dependent on his neighbors and therefore less dependent on the markets.
  3. But capitalism is the condition of dependence on the market for one’s very subsistence. Therefore, “the fundamental condition for the existence of a capitalist order is the absence of the individual autonomy in the sense of owing the source of your food,” and of forcing people to seek a monetary source of subsistence. This is not a natural condition, as is owning one’s own land, because “People do not search instinctively for a source of monetary revenue.” They do so only because they are forced to do so.
  4. “Capitalism is made possible only if this natural process is interrupted by an instrument that makes sure nobody could have access to food and shelter unless a monetary revenue is used as an intermediary.”
  5. “Therefore, the capitalist order is not natural. Such an order can be maintained only if there is an institutional arrangement which prevents the individual from not engaging in commercial relations through the agency of money.”
  6. That “institutional arrangement” is a government that requires people to pay taxes and fees only in the form of money. Only the state can perform this coercive function upon which capitalism depends. “The source of the revenue gets prominence over the source of food; the commercial relations are widespread because, basically, it is impossible to avoid them.”
  7. The state is necessary for another reason, namely that “free competition is as unnatural as capitalism itself.” In absence of the state, commerce would be a matter of rent-seeking, a behavior only government regulation can prevent.
  8. Paradoxically, the “freedom and prosperity of capitalism” are possible only “by denying people direct access to food and shelter.” In order to have this capitalist “freedom,” we must be alienated from our own nature. But if this is done, then “the breach created between us and our nature- and between us and nature in general – open a space previously unknown to human freedom and it is a form of civilization.”
  9. Because of this fundamental alienation from nature, “ any individual that lives in the capitalist order is a fundamentally precarious being, of a radical frailty. It is the precariousness of the one who has no firm ground under his feet.”

What is remarkable about this chain of reasoning is that it can be read as either an attack or a defense of capitalism. Indeed, it is difficult to discern, from within the argument itself, which way it will turn out. Mr. Cucerai offers only an instrumental defense of capitalism, namely that it will result in more goods and higher wages. Aside from the fact that such “consequentialism” is morally suspicious, at best, there is a question of whether the basis of comparison here is valid; one would have to compare the subsistence and security of a wage-based economy with that of a property-based economy, that is, of Mr. Cucerai’s “unnatural” economy with a more natural one. We know that in 16th century England, before capitalism came to dominate social relations, a common laborer could provision his family by 15 weeks of work, and a skilled laborer by 10. A century latter, after the closing of the commons and the seizure of the monasteries, which instantly converted England into a capitalist country, those numbers became 40 weeks and 32 weeks, respectively.[1] Moreover, in a global economy, it is necessary, to weigh the wages of the workers in sweatshops before reaching a judgment on this question. Further, the plain fact of the matter is that nations which fed themselves comfortably for millennium before the coming of the capitalists find themselves starving under Mr. Cucerai’s “freedom.”

But laying that question aside, we can address the strength of Mr. Cucerai’s arguments. The first point is that this is very much an Aristotelian argument, even if it reaches conclusions opposite to Aristotle, in its division of economics into “natural” and “unnatural” exchanges. For Aristotle, natural exchange was that necessary to provision the household, while unnatural exchange had money alone for its object. The first sort of exchange was “natural” in the sense of having a natural limit. For example, a man buying bread for his family will buy what he needs and no more. But a man whose object is not bread but money might buy up every loaf of bread and every grain of wheat in order to corner the market and set the price to his own advantage. Since there is no limit to such exchanges, Aristotle regarded them as “unnatural.”

The second point we can note is how well the arguments accord with the actual history of capitalism. The plain, historical fact is that capitalism and government grow hand in hand; the larger the business entities, the larger the government necessary to protect them. This fact had already been noted by Adam Smith in 1776, in The Wealth of Nations, three-fourths of which is devoted to documenting the incestuous relationship between big government and big business.

The third point is that Mr. Cucerai provides libertarianism with something it normally lacks, namely a theory of government. Hence the performance of government can be judged against that standard of its proper function. One may not agree with Mr. Cucerai’s definition of the function of government, but at least the standard is explicit; the question now comes under human intentionality and can therefore be controlled, at least in principle. For the anarcho-libertarians especially, government is despised in and of itself and hence every question of government becomes an “all-or-nothing” question. But framing the question in this way always works to the advantage of the “all” of the state, since in times of crises there are simply not enough nihilists to vote for the “nothing.” Thus, the increase of state power is always and everywhere the unintended consequence of libertarianism.

The fourth point is that Mr. Cucerai has accurately described the rule-bound nature of competition and exchange, and the fact that rules must be external to the market. Indeed, competition, properly understood, only works in a larger framework of cooperation, and this cooperation is expressed in agreement to rules which are imposed by institutions of common consent. Think about a football game. It is certainly a competition, and a violent one at that. Yet, it cannot take place without the framework of cooperation, namely, that all players will be bound by the rules and judged by referees who are not themselves players in the game. Unless the game stops when the referee throws the yellow flag, the game cannot really start. Without the referee, there can be no game, but only warfare, which will continue until one side is utterly defeated or even killed, at which point both the game and competition end.

The fifth point is that Mr. Cucerai has correctly identified monetization as foundational to capitalism. One historical confirmation of this point comes from the “hut tax” that the English imposed on their African colonies. The point of this tax was not revenue; indeed, it probably cost more to collect then it raised in income. Rather, its point was to force the Africans to get something they had never needed before: a job. The climate supported the people in relative comfort with relatively low levels of work, and the Africans, left to their own devices, were happy with this arrangement. But a money tax forced them to take employment in the English mines, plantations, and factories. The point of the hut tax was not revenue, but labor. Finally, we can note that Mr. Cucerai has certainly given us an accurate description of capitalism, and all discussions of any system must begin with an accurate description. However, it is a description that leaves out one crucial element, an element that flows from the description but which Mr. Cucerai does not address. I will return to this point a little later. All that being said, we still cannot determine whether capitalism under this description is a good or a bad thing. Indeed, do we really want a system that alienates man from his own nature and results in a “radical frailty,” a social arrangement in which we have “no firm ground under our feet”? There is a bleak, Orwellian character to Mr. Cucerai’s description in which “freedom is slavery,” in which man has to be a wage slave in order to be free; in which he has to be denied access to the ground of his freedom (that is, property) in order to participate in “free” markets. But is this a proper definition of freedom? Is it even a proper definition of economics? I believe that the author has made two fundamental mistakes: one, he has reduced all markets to monetary markets, and; two, he has confused the “free market” and “capitalism” as if they were the same, when in actual fact they are more often things opposed to each other. A purely “monetary” exchange market is problematic in several ways. The first has to do with the nature of money, which should be merely the unit of account for all the circulating goods within a given economy. However, money can too easily be manipulated apart from the market for real goods and services. The Americans have proved, beyond a shadow of a doubt, that trillions of dollars in financial wealth can be created without having any relation whatsoever to real wealth. Men who contributed not so much as a grain of wheat to the commonwealth are paid billions from the common purse in reward for their failure. And this was done by men operating in largely unregulated markets. Money, as a unit of account, is an abstraction, and the more abstracted an economy becomes, that is, the more monetized, the more easily it may be manipulated by those “in the know” about the mechanics of abstraction, and a completely monetized economy is the easiest of all to manipulate. The truth is that man operates in several markets simultaneously, most of which are not monetized, and all of which serve as checks on the other. When all markets are monetized, all markets fail, and fail decisively, without any hope of recovery.

The first market in which we operate is the gift economy of family and the community. We are first called into being by the ready-made community of the family, and from this community we receive a variety of gifts. Our being, to be sure, but also the gift of our name, our family, our language, our first moral perceptions, our first experiences of love and belonging, and so forth. This economy of grace (gifts) is the primary economy, and all other economic and social activity must be judged from the standpoint of how well it serves the family. Without this check, there is really no way to know whether the economy “works” in any concrete sense. A fully monetized economy erodes the gift economy of the family upon which the whole social order depends. Beyond this family economy, there are economies of community service, economies of political activity (in which votes are the medium of exchange), religious economies, and so forth. All of these depend on the economy of production and exchange (note both terms), and hence are checked by that economy, even as they provide checks for the exchange and production economies. Mr. Cucerai states that capitalism “opens a space previously unknown to human freedom.” But what he does not mention is that this must be a very small space, one occupied by the possessor’s of land and capital alone. That is why we call it “capitalism.” Indeed, the very fact of denying access to the means of subsistence to most men means that a few will end up in possession of the vast bulk of these means. This point flows naturally from Mr. Cucerai’s own description of capitalism, but it is the crucial point which he has left out, and without which his description cannot be considered complete.

Not only is this concentration of capital bad morals, it is bad economics and bad social theory. It is bad economics because all market theory is based on the “vast number of firms” hypothesis, which states that production is spread over such a vast number of firms so that no firm, or no possible combination of firms, can have any influence on market prices; that is to say, they are all price-takers rather than price-makers. When you have consolidation in any industry, the whole basis of the free market collapses, and monopoly and oligopoly are the result. But that is just a part of the problem. I will skip over Mr. Cucerai’s preposterous claim that you can have, simultaneously, a rise in production prices and a fall in consumer prices, as if the later were not dependent on the former, to note that rising wages are not the norm in capitalism. Indeed, in the United States since 1973 the median wage has remained flat, even though productivity for all classes of labor has increased dramatically in the same period. This means that the workers are producing more goods, but must purchase them with the same rewards. Since this is not possible, the economy has resorted to three stopgaps to maintain consumption. The first is to put more family members to work, and to work longer hours. The second is to increase the role and size of government to absorb more of the output. And the third is simple usury (consumer credit); have the class that is over-compensated—that is, the possessor’s of capital—simply lend the excess to consumers to soak up the excess goods. But all three methods have reached their logical limits. The family is working as hard as it can (to the detriment of that family life which the economy ought to serve), the government cannot expand much further without discovering those limits on expansion that the soviets discovered, and the credit system has collapsed. There is no further that we can go without changing the system. Mr. Cucerai assumes rising wages in a free market. Capitalist defenders assume that “free contract” is sufficient to ensure such rising wages. But Adam Smith noted the problems with this theory:

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine more easily…A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month and scarce any a year without employment.[2]

Thus Smith identifies actual wages as the result of a power relationship between masters and workers and not a result of purely “economic” forces; it is power, not productivity, that is arbitrated in a wage contract. An American CEO gets 500 times what the line worker makes not because he is 500 times more productive but because he is 500 times more powerful. The seamstress in a sweatshop gets a pittance not because her productivity is low but because her power is pitiful. The power to negotiate a wage comes only with the power to say “no” to the terms offered, and this power comes only from the possession of an alternative to the wage. And only property confers this power. Where workers have their own property and can make their own way in the world, any wage contract they accept is likely to be a fair one, one that fairly rewards their productivity. But in absence of a real alternative, there is no real negotiation; you cannot negotiate if you cannot say “no.” What a free market really requires is free men, and what men require to be free is access to their own means of subsistence, which is precisely what capitalism denies them. The proper ground of freedom is one’s own proper ground, the very ground which Mr. Cucerai would cut out from under the worker. What is denied to the mass of men must fall to a minority of men, men who will then be the masters of society and the effective rulers of government, co-opting it to their own ends. This is what has happened. The higher the piles of capital gathered in a few hands, the thicker the walls of government necessary to protect that capital, and capital and government combine to limit freedom, to restrict property. Capitalism is therefore not to be confused with the free market, but to be identified as its mortal enemy, and to confuse the one with the other is to totally misunderstand the reality of modern economic, social, and political life. Mr. Cucerai is to be praised for his almost unflinching look at capitalism, but he is to be critiqued because, at the last minute, he flinched, he looked away from the logical consequences of his own description to skip the crucial point upon which the whole discussion must turn. He went to the edge and turned back just a hair’s-breadth from the truth. But we cannot turn back, for only if we have the courage to look at things as they are can we expect to have the strength to make them what they ought to be.

[1] J.E.T. Rogers, Six Centuries of Work and Wages: The History of English Labour (New York: G. P. Putnam’s Sons, 1884), 239.

[2] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Amherst, New York: Prometheus Books, 1991), 70

 

About the author: John Médaille

 

John Médaille is an adjunct instructor of Theology at the University of Dallas, and a businessman in Irving, Texas. He has authored the book "Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More", "The Vocation of Business", and he has edited "Economic Liberty: A Profound Romanian Renaissance".

 

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37 Comments

  1. Stephen Peterson

    Wow, this is powerful stuff John. Now to get this message out there.

  2. I find myself in complete agreement with the paper John. The title of it is true but seems calculated to antagonize those who might be won over if they would read it.

    It likewise positions the work as a “socialist” screed when, in fact, I know that this is the furthest thing from your intention.

    On the other hand as writer, I know it’s easy for little molehills to become the mountains of a critics review… so I’m just passing this along.

    I think it’s interesting that this Romanian Libertarian has made such

  3. I hit “return” too quickly.

    I find it interesting that this Austrian economist who “presumably” cannot be faulted for distorting “true capitalism” has made your point.

  4. This is terrific John. Be sure to distinguish between a “free market” and a “competitive market”. Not all free markets are competitive; I can’t think of a competitive market that is not free.

    Oh, and please be VERY careful of the “common purse” idea.

    t

  5. Very interesting.

    Here’s a question, though, John. Can we effectively call the break up of the religious houses and the transfer of those funds to already landed and wealthy class, really the beginning of capitalism? It starts with an artificial and unjust distribution of wealth and allows that to be perpetuated until there is, as Belloc and Chesterton cried out for, some sort of redistribution.

    Wouldn’t that oligarchy-cum-plutocracy be, essentially, anti-capitalistic, and we wouldn’t see capitalism in England until that false beginning so to speak had been dissolved? Until, in fact, people could truly own the means of production, a situation that really didn’t arrive in England (some might say ever).

    Why am I wrong to think using England as an example creates a straw man argument?

  6. Fantastic! There is an awful tendency, with both the mainstream left and right, to confuse (innocently or not) our current state-capitalist economic system with a “free market.” This was the very point of my comment in the earlier article: “Is a Free Market a Good Thing?” The large-scale, winner-take-all corporate “competition” that is responsible for so much human misery and environmental destruction would not be possible absent the intervention of the coercive force of the state. So — get rid of the state? That’s a discussion for another day. But, at a minimum, re-empowering the average person to achieve self- and mutual-sufficiency through voluntary associations for the basic needs of life is the best possible defense against many of the depredations of both the capitalist system AND the state. Thank you for the great piece!

  7. @Tom Leith

    “I can’t think of a competitive market that is not free.”

    I guess it depends on your definition of a free market.

    For example, several grocery chains in my area compete with each other for customers. By definition, it is a competitive market. I, on the other hand, am not *allowed* to hang out a sign and open my own grocery store without running afoul of zoning restrictions, licensing and code requirements, health and safety regulations, etc. Agree or disagree, as you choose, with the wisdom and efficacy of any given state-imposed regulation. The fact remains, they ARE barriers to open participation in the market and render the market not “free.” Now, it is true that a free market does not guarantee a competitive market 100% of the time. But in a free market, monopolies or oligopolies will tend to be fewer, because developers and vendors of alternatives and substitutes will always follow the opportunity.

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  9. @Pat DR Distributists do not share your vision of market freedom. You are MORE free right now under Economic Liberalism to open a grocery store, state or county regulations notwithstanding, than you would be under the DR Distributists’ vision of a Guild System.

    Using your grocery store example, DR Distributists apparently would require that you serve under a Master Grocer for some period of time (determined by the Guild and your Master, rather like a PhD committee) before you’d be allowed to open your own store AT ALL. After that, being a Grocer’s Guild member in good standing, you’ll have agreed to employ only Journeymen and Apprentice Grocers’ Guild members, to abide by essentially the same building, health and safety, and other regulations you’re complaining about. But you’ll have agreed to them, they will not be “imposed”. Zoning would be handled by a neighborhood association. As a Guild Member, you will have agreed to a price floor and also to advertising restrictions. You will have agreed not to open a second store without the approval of the Guild, and you might have agreed not to join any other Guild. It goes on.

    If you are looking to Distributists to argue in favor of a market free of institutional barriers to entry, you will be disappointed. They think institutional barriers to entry and limitations on scope leave the small operator more “free” by which I think they mean “more likely to succeed at running a grocery store”.

    On the other hand, one of the original Distributists didn’t think much of grocery stores at all:
    http://bit.ly/gAKkWc

    t

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  11. And that same early Distributist wrote favorably of every book Arthur Penty penned.

  12. @Tom Leith

    Thank you for the thoughtful reply. When I responded to your comment, it was merely to take issue with your contention that a competitive market is, by nature, a free market. My opinion on that remains unchanged – “more free” does not equal “free.” (Not to say that “more free” is a bad thing!)

    Regarding the rest of your post, I’m familiar with the guild model. As a mechanism for skill certification and support of community-driven commercial and professional standards, I am all in favor of a guild system, especially as opposed to a “one size fits all” regulatory model of the monolithic corporate state. But, as an arbiter of voluntary transactions between individuals, not so much. Likewise, I, personally, find the guild system somewhat rigid, especially as regards the interdisciplinary nature of networking and technology and the opportunity for more flexible and effective use of skills and resources. But, again, I fully agree that a community should, by its values, settle on it’s own standards of day-to-day community life as well as the approach for attaining those standards.

    If I gave the impression that I am in favor of NO regulation or barriers to any economic activity, then I apologize for my lack of clarity. While I come from a Mutualist perspective, I fully understand that individual behavior MUST be limited in order to minimize (I don’t think it’s possible to eliminate) negative externalities. On the same token, I am strongly in favor of non-hierarchical means of reaching that goal.

    In any case, I definitely applaud Distributists and The Distributist Review for working to provide a practical roadmap out of the violent, unjust and destructive economic system under which we now live. While I may not agree with every approach Distributism might propose, I feel our overall goals: peace, justice, life, give us common ground. Hope you don’t mind me throwing in my 2 cents.

  13. @Tom Leith

    Just read “The Song Against Grocers.”

    :-)

    Thanks

  14. Stephen Peterson

    @Pat
    I don’t think interdisciplinary technologies necessarily needs to be unworkable in a guild system. There is nothing stopping masters from different guilds entering into partnership, or even entering into cooperative enterprises. Much the same as how professionals employed by companies today often have professional memberships, so the worker-owners of a cooperative enterprise might individually also be members of their relevant guilds and be regulated by them. It would simply mean that if there were a couple of big coops in a particular community, the coops and the guilds would have to work together to make everything work smoothly.

  15. @Stephen Peterson

    I agree that a guild system could be applicable in a wide range of production and service functions. However, networking and technology (not necessarily even “hi-tech”) allows us to produce much more in a given time segment than it did when guilds were last ascendent. Additionally, the capital investment needed (absent artificial rents) to produce a given unit of output is also lower, in general, especially in the basics, such as food, water, textiles, metal/woodworking, etc., for which there are enormous established technological bases. Likewise, information is also much more fluid and replicable now and skills can be gained from a great variety of sources and through a wide range of media. And, the division of labor, while dehumanizing in a coercive or exploitative industrial context, has given us a completely different view of how distinct activities may be isolated and organized to fulfill diverse needs. While there will always be full-time, comprehensive specialties (doctor, farmer, innkeeper, etc.), many (most?) of us may now be amateurs, apprentices, journeymen or masters of infinite combinations of specialized activities. Networking capabilities allow us to integrate and coordinate those activities for the most positive output with optimal use of resources.

    My point is, for a community to be successful (which, in this context, I define as meeting the most needs for the most people with the most effective use of resources), individuals should be capable of, allowed and encouraged to take on a wide variety of roles. This provides flexibility and redundancy in the fulfillment of community needs in addition to allowing the members of the community to establish a personal niche where they may choose from a wide variety of tasks, enjoy more opportunity for creativity and personal growth and have a sense of always “being needed” by their community.

    Now, I’m not an expert in Distributism or the guild system (obviously)….so this is not to imply that the guild system cannot provide such an environment. I further realize that Distributism is as much, or more, a philosophy of living as it is a mechanical means of “getting stuff done.” So, if these issues aren’t valid or if they’re already covered somewhere, I’d be happy to learn more.

  16. Tom-you may want to get John Medaille’s new book, so far reading, excellant as his last book. In my area, few markets are inedoendant. Some are IGA’s, independanlty owned, but can be several stores. Right now, under the present system, how would a working man have the capital to rent/buy space adequate to compete, buy the goods, registers,etc? he would not, unless he got assistance in some form. And where does that come from? Even if said man had yrs of experience, the Govt and the Monopolies would not want him around and would not assist him. Even Belk’s stores are consolidating and have so since late 90’s. They used to help loyal, hard working employees by helping them start their own stores, for a cut of profit from fronting the money. Hence, Hudson Belk’s, Belk Legget,etc…..our “free market” is consolidating and hence, using its weight and pull to block out others…….John notes that we cannot under present circumstance really have a “truly free market”, it only appears so for the few….

  17. To Jennifer,

    I look forward to having John respond to your question: “Why am I wrong to think using England as an example creates a straw man argument?”

    However, I don’t believe Chesterton/Belloc are unique in their assessment of capitalism’s beginnings. I’m thinking especially of Marxist theorists like Brenner, Perelmen, Polayni, along with the Christian Socialist, Tawny. I suspect that the answer has something to do with the rise of secularism and [bad] late medieval theology.

  18. Dear John,

    First time here. As I told in my email (I am the one that asked you to evaluate a paper of mine. Do not worry. Take your time), I am huge fan of Chesterton that discovered Distributivism recently.

    Allow me to comment your post. For me, the most convincing point is when you talk about the three stopgaps to maintain the consumption.
    Besides that, Christopher Ferrara considered how banks work in the penultimate Gilbert Magazine. I think that he has an interesting point about the intrinsic evil of banks in lending money out of nothing. And you also have an important point to add: money is not capitalism.

    You also said that “free trade is not capitalism”. Recently I read an interview with Thomas Woods Jr., an Austrian Catholic economist (!), defending free trade as not having any distribution mechanism.

    If you do not see it access: http://www.insidecatholic.com/feature/the-money-meltdown-a-conversation-with-thomas-woods-jr.html.

    From my point of view, Woods need to understand better Catholic Church position. I always found difficult to conciliate Austrian school with the Church, for the simple reason that Mises hated the Church, and eliminate all religion from economics in his praxeology (I also always think praxeology a weak argument). He even eliminates psychology from men (!).

    As I told in my email, recently I went to an Austrian economists conference in Prague. There, I found people from Rey Juan Carlos University, PhD students of Jesus Huerta de Soto. They knew about the differences between Ferrara and Woods. One of them was Catholic. I told him about my differences with Austrian school.

    I do not know if you write about before, but it will be nice to hear from you about Ferrara versus Woods and the Catholic Church position (Rerum Novarum, etc.). It is interesting, Ferrara and Woods write a book together once, but they look so different when dealing with economics.

    Also, allow me to ask you if there is any economics journal that support distributivism. I have plans of two other articles, much more related to this point of view.

    Finally, visit my website thyselfolord.blogspot.com. It is written in Portuguese, but you can use google translation to read.

    Best,
    Pedro Erik

  19. My question is this: If folks like Adam Smith saw the negative results, why did they favor capitalism in the first place?

    Assuming they were interested in the well being of society, surely they saw these dangers? The only thing I can think of is that their religious-philosophical framework prevented them from seeing this.

    Also, for whoever is in charge of the website, the option to “Download as PDF” needs to be fixed (or use a different publisher) because the resulting PDF removes all formatting (e.g. paragraph breaks) and thus makes it unreadable.

  20. Robb–

    Thanks, I am looking forward to it, too.

    I don’t think the argument is unique–rather, I think that it is an old argument that has become a strawman through time as we have a couple of centuries worth of data and the American experiment to add to the mix.

    At the time it was more valid than it is now. Particularly, since most people weren’t addressing how the dissolution of the religious houses affected Europe in particular.

    Chesterton I think went to a great length to acknowledge the difference between Capitalism and Industrialism in Europe versus in America as well. I think that has to be addressed, and I’m interested in what John’s answer is to that objection. In the interest of furthering the argument from his point of view, and enlightening me as to what I’m missing.

    My brain just can’t accept that narrative as being as relevant today now as when it was first made.

    Penty, Chesterton, and Belloc made a hell of a lot of sense and called a spade a spade as it were in their social and historical context. That form can be telegraphed but I’m not sure the precise argument can be mapped 1:1 onto current American economics.

    Which is to say–we can as Chesterton said about Lincoln (in a horrible paraphrase, forgive me) we can use capitalism here without defending it as being perfect or even humane.

    I’m very open to being proved wrong or being enlightened on the matter.

  21. Stephen Peterson

    @Pat
    As you say, the guild system is philosophy, not a specific methodology, so individual communities will need to find their own solutions for the most part, but presumably the most obvious is that the actual guilds set up in a contemporary society wouldn’t be the same as in the Fourteenth Century. For instance, we probably don’t need a blacksmiths’ guild, while our medieval counterparts wouldn’t have had much need for a linux programmers’ guild.
    The only way to find a practical solution is with a practical example of a particular local community that is attempting to adopt a localised economy.
    Perhaps what you are considering to be interdisciplinary skills might be also be considered complete skill-sets in their own right from a different perspective. There are always skills needed in more than one trade. Return to the Fourteenth Century and you’ll find that many of the skills needed by a carpenter were also needed by a cabinetmaker, yet these were usually considered to be two separate professions. Rather than considering a profession as a random collection of skills, it needs to be considered as that complete collection of skills required for a particular occupation. Perhaps what you describe as ‘roles’ are simply the various skills required for a particular profession.

  22. Jennifer, undoubtedly it’s due to my mental density, but wasn’t quite able to follow your questioning of John’s setting the date for the birth of capitalism. I’m also inclined to doubts about it, mine being based on the fact that it was land, not capital, that these rich men obtained. Accordingly, the system set up at that point might better be called “landlordism” than “capitalism”. Does that gibe at all with your insights?

    Viking

  23. Hi Viking,

    It is just as likely due to my own sometimes convoluted way of expressing myself. What I mean is, if what the argument means to do is challenge capitalism, if we start the narrative of Capitalism with what happened in England between the Middle Ages and the Industrial age. We have a few problems–one being that it wasn’t so much capitalism that was unnatural but the condition of breaking up the religious houses and redistributing their properties amongst a small class of already wealthy people.

    It sort of clouds the view of capitalism being the mechanism of unjust distribution as capitalism had no part in the decision to destroy the religious houses and to recapture lands owned by the Church.

    I think it also presents a host of problems with applying that narrative to America where things have been much different–in some ways more just in other ways far less, but I’m not seeing an effective 1:1 mapping of what happened in England to American economics nor am I understanding how Capitalism was the mechanism of unjust distribution in England.

    This is why it seems a straw man–if you wish to narrate capitalism as unjust, you have to include the initial social injustice incurred by the Reformation in which the State reclaimed property and redistributed amongst the wealthy leaving the poor destitute. If you accept the unjust distribution of property in England at the end of the medieval period as an exponent of Capitalism then of course, Capitalism is unnatural and had immoral outcomes. That’s the straw man to me. Capitalism is not the mechanism that caused that injustice.

    These are some problems I simply can’t get over in reading Distributist literature and I’m not saying its inherent in the theories necessarily, I just want to know, if I keep hitting up against these problems in my own head–how do the Distributists answer them? I can’t be the first to see them so I wanted to know how they solved that problem for themselves.

  24. Stephen Peterson

    @Jennifer,

    My understanding, for what is worth, is that capitalism is not being considered unjust because it caused the initial post-Reformation change of property distribution in England. That change was caused by one man and a parliament, and that change also created capitalism. The way the change was carried out also happened to be unjust.

    The change, having been carried out, established the capitalist economy in England. Once established, capitalism sustained and magnified the injustice that had been initiated by a king and his parliament through the whole realm.

    Furthermore, capitalism, once established in England, began to spread through other realms, but it spread the most rapidly during the time of British colonialism. Effectively, every former British colony was touched by capitalism in some way. Also, since there was a strong historical link between capitalism and certain strains of Protestantism, places that were the subject of a missionary effort of those forms of Protestantism came under the influence of capitalism.

    I sort of imagine a virus that is spread through contact. You only need to get one cell of the virus in you, and if your immune system can’t handle it straight away it will spread through your whole blood and make you contagious to others. So with capitalism, once it got a foothold in any realm or colony it spread like a disease.

    As a disclaimed, I’m not advocating that its spread was inevitable. It could have been stopped in the early stages if people wanted it stopped. But some people stood to gain from it, and the others didn’t really understand what it was until it was too late, so it spread.

    But please, don’t take my ideas as authoritative. I’m just explaining the problem as I see it.

  25. @Pat — Sometimes I think DR writers use the word “capitalism” to shock, and when you dig a little deeper you find that by “capitalism” they mean “Economic Liberalism” or “Philosophical Liberalism Applied to Economics”.

    What I think they mean by Philosophical Liberalism is the combination of an understanding of man as Individual-Who-Wills, the proposition that human dignity consists in following one’s own will, the proposition that Authority is nothing but the will of one man imposed on others, and the proposition that Justice consists in the exclusion of physical force and fraud from society — i.e. permitting everyone else to follow his own will. Note that Philosophical Liberalism has rights but not duties.

    A Liberal economic system will have no institutional restraints concerning the quantity of resources that might be owned or controlled, presupposes no duty of one towards another, presumes that an individual can always find a Spartan alternative to any contract so there is no question of “force” with respect to contracting, and in the further absence of fraud there is no injustice in a system where some are rich and others literally starve. Mix these ingredients, shake with icy Calvinism, and you get Capitalism in the sense the DR writers mean it. Try making that mental substitution when reading their articles and see if that helps.

    So they say “Capitalism” is what confiscated the monastery lands and redistributed them to the rich/Manifestly Elect and don’t see it as a strawman argument.

    In America we temper Capitalism with anti-trust laws, labor laws, a welfare state, some small bits of an industrial policy (funding university research, for example) and so forth. I think the DR writers are correct when they say that Economic Liberalism can’t work and when they characterize anti-trust laws, labor laws, the welfare state and so-forth as propping-up our Philosophical Liberalism against collapse. American Conservatives are philosophical Liberals and that means almost axiomatically that they’re Capitalists at heart. They may recognize individual, subjective duties, but are loath to have them expressed through any authority having coercive power.

    I am sure now that one or more DR Writers will correct me ;-)

  26. Hey Jennifer,

    I think your reservations are completely fair. Though, I’m wondering: are you assuming that capitalism is inherently natural, as if it has always been with us since the dawn of civilization?

    I ask because you state that “capitalism is not the mechanism that caused that injustice.” By this do you mean to say that capitalism unfairly gets a bad rap or that the distributists are not radical enough in their thinking?

    For the Distributists, and certainly Socialists, capitalism IS a huge component of creating injustices; simply because capitalism (along with state-centered socialism for the Distributist) represents the perversion of natural human relations. So maybe the issue you bring up has to do with how you define capitalism???

    Or maybe you’re approaching this from a different angle all together. The only reason I feel compelled to answer is that this is a question I’m still thinking through, so I appreciate you asking for clarification.

    Robb

  27. David W. Cooney

    Jennifer,
    I can certainly see your point about the straw-man argument. However, the land confiscations in England were just as much an effort to enrich a particular group of land holders as they were an effort to hurt the Church. Henry VIII didn’t take these lands and keep them for himself, he took them and gave them to various lords so they would back him. The lords didn’t agree to back Henry because they opposed the Church, but because they saw the opportunity to increase their wealth.

    George O’Brien’s “An Essay on the Economic Effects of the Reformation” outlines the direct relationship between this philosophical shift, the Reformation, the confiscation of lands and the establishment of Capitalism. Capitalism in its nascent form existed at that time, and the lords used their economic power to influence the head of state to further their wealth in exchange for their support. In this sense, I believe the argument is valid.

  28. @John — that last comment should have been addressed to Jennifer, not Pat. Can you edit it?

  29. David W. Cooney

    Pat,
    Tom told you what you would likely face if the guilds were restored. He didn’t mention any solutions to your current problem with opening up a shop. However, he did mention in another comment that he favors the ideas of Kelso, so what would you face under that? Well, I hope you don’t plan for your business to grow very much, because if it grows to the point where it could be considered a corporation, you will be forced to give shares of your company to all of your employees. You can’t just give them a token share either, the purpose of this plan is essentially a replacement of the current pension plans. Also, your the functions of your board of directors will be replaced directly by the share-holders whether they like it or not. This will also be forced by the power of the state. Naturally, this can only be done if the highest level of government is given even more power over businesses than it currently has. That’s not a problem, however, Kelso relied on those competent people in government to know what was best and advocated more involvement in regulating all levels of the economy.
    Really, Tom. You this is a “minor institutional reform?” After a lot of major corporations (whose benefits you touted in other comments) flee the country to escape this, or at least outsource even more jobs to foreign countries where the laws cannot be enforced, the remaining companies will simply stay below the government’s definition of a “corporation” to avoid it.
    Also, is a corporation determined by its size, by its stock options, or what? What is to prevent the government from deciding that, in order to fulfill its mandate to “its obligation to assure all
    households in the economy a reasonable opportunity to participate in the production of wealth to an extent sufficient to earn a viable income,” it must now mandate that even smaller businesses like Pat’s must give shares to employees and then distribute 100% of the net earnings to all share holders? Oh, the banks will LOVE this because it means that companies will no longer be able to do any financial planning that involves saving cash reserves for future needs instead of taking out loans from banks. So, how exactly will this solve the problem of the concentration of wealth and productive capital?

  30. Tom,

    I think your explication of economic liberalism and capitalism is right on the money.

    Robb

  31. @David I said “RELATIVELY minor”, a qualifier you oh so conveniently dropped. Kelso’s capital formation and ESOP plans are certainly minor compared to your fantastic guilds.

    > is a corporation determined by its size, […]
    > or what?

    Firms are corporations when they incorporate. You know, when people who want to change the legal status of their venture go to the state and agree to certain conditions in exchange for certain legal benefits.

    > What is to prevent the government from [forcing]
    > even smaller businesses like Pat’s [to] give
    > shares to employees

    Where do you get this nonsense?

    Property laws. Kelso never proposed EVEN ONCE that anything should be taken from anyone or that anyone be given anything except debt-free capital taken from no one.

    > and then distribute 100% of the net
    > earnings to all share holders

    Kelso did think that corporations (you know, firms that decide to incorporate) ought to be required to pay out their earnings as dividends more or less as they’re earned. I don’t know what he thought about working capital, but he didn’t want management to accumulate cash on the balance sheet — he wanted the actual owners of that money to decide what was to be done with it without having to give up ownership in the assets that produced it. Note that income is net of depreciation: corporations could accumulate cash to offset depreciation.

    > the banks will LOVE this

    This tells me you have completely missed Kelso’s point about capital formation and earnings payout. Corporations would be required to go back to the capital market in order to start a new project or expand. But what is the capital market? You and me, and 300 million of our friends and neighbors. And THAT sir is what helps solve the problem of the concentration of wealth and productive capital: no retained earnings, debt-free capital widely distributed through a money-creation mechanism that isn’t a whole lot different from the one national banks have used a lot more recently than guilds had anything to do with an economy.

    Here’s John Médaille on Kelsonian ideas:

    http://www.medaille.com/pracdist.htm

    It is short and outlines the fundamental ideas pretty well. Professor Médaille’s good at that.

    “The basic moral problem that faces man as he moves into the age of automation, the age of accelerating conquest of nature, is whether he is really fit to live in an industrial society; whether his institutions will adjust rapidly enough; whether he will rivet himself with an absurd institution like full employment in the economic order when it is not only unnecessary but unadministratable in anything but a slave society; whether freed from the necessity to devote his brain and brawn to the production of goods and services, he can address himself to the work of civilization itself.”
    (Louis O. Kelso, 1964)

  32. Stephen, how did the loss of the monastery lands and the commons create capitalism? Again, my description of this as “landlordism” rather than “capitalism” seems more accurate. Please explain, if you have the time.
    To the group as a whole: if the masters were in effective control of the guilds, the apprentices and journeymen having no real say in guild affairs, how are the masters so different from what we might call small-scale capitalists today? This seems especially poignant because of the anti-combination laws in place, unlike the labor laws of today.
    Incidentally, is the usually sardonic phrase “Our Lords and Masters” derived from this era? It seems to me that many a poor man might have felt trapped between the lords in the country and the masters in the towns (so, everywhere), and echoed this bitter diatribe.
    Viking

  33. Tom,
    “Relatively minor” I apologize for leaving out the first word. I still maintain my point. We at the Distributist Review admit we are discussing a very fundamental change of the economic order. I am certainly not claiming that isn’t the case. However, you don’t admit, or don’t realize, that Kelso does the same thing in a different way and at a different level. That is both sad and frightening. Really, Tom, to grant the highest levels of government the authority to override the internal business decisions of a corporation on how to handle its income and a mandate to “assure all households in the economy a reasonable opportunity to participate in the production of wealth to an extent sufficient to earn a viable income” is a “relatively minor” change in our economic and political order? I just don’t see how you can say such a thing with a straight face. I suppose you could have meant “relatively minor” in relation to the guilds, but it’s still a major change. Maybe he disagrees with me, but Medaille likened the ESOP to a leveraged buyout selling the company to the employees. Mandating something like this for all corporations is a minor or relatively minor change? Note, I’m not saying that such a thing would be bad, but it is not insignificant. Regardless, I will give this more thought.

    The level of authority the government has to do things is currently a hotly debated thing, but it seems to me that Kelso’s solution settles it in favor of the highest levels of government. Additionally, all of the economic scenarios with which you criticize us and our guild system continue to exist under Kelso; as you pointed out regarding the guilds, there is absolutely nothing inherent in Kelso that would prevent them. The difference is that only the highest levels of government can address them under Kelso and we would rather bring that ability much closer to home. Is this a major shift? Yes. Is it even a greater shift than Kelso proposes? Yes. I think there is a more fundamental problem with the current institutions, both government and corporate, than you apparently do.

    Regarding the definition of corporation, you seemed to miss my point. Kelso gives the government an absolute mandate. I asked what would happen in regard to that after the corporations either outsourced the jobs to foreign counries or simply didn’t qualify as a “corporation.” You ignored that. I am aware of what a corporation is under the present law. I think the forces in government will likely to go beyond the current understanding of corporation and insist that the intent, and therefore the law, is broader than that. Maybe I’m wrong. Pat, maybe you can trust the federal government to leave you alone. It’s not like the government has ever reinterpreted things to go further than the law allows, right? For example, we’d never see government use eminent domain to take private property to give to a large private developer, or use the Commerce Clause to prosecute and fine farmers who grow crops for their home use, or use that same clause to force people to buy a particular type of insurance, or force a private corporation to fire its CEO, or claim that the Constitution guarantees right to produce pornography or to have abortions, right? The legislature makes the laws, and it can change them or even, as history shows, simply reinterpret them. It can even do so against the will of the majority of the people as we so recently witnessed with the health care bill. The current people sitting on the bench of the Supreme Court may (or may not) head this last instance off, but they didn’t in these other cases. I don’t want to permanently rely on whichever nine people happen to be on that court at the time to protect us from government abuse. I certainly don’t want to rely on “representatives” in government over whose decisions I have very little influence. I’ve had enough of that. I want those decisions to be made by those over whom we can have a greater influence. Maybe the debate between us is merely what level of involvement the government should have in regulating the economy and at what level of government that involvement should be. I’m no libertarian, but I certainly don’t want it to have more than it already does.

    Tom, corporations go to banks to start new projects. Oh, yes they need a market in which to sell the product of those projects – or at least a plan to create such a market, but they go to the banks to fund them. That was my point. You seemed to say that net earnings don’t include funds set aside from earnings for savings, or that they wouldn’t in the cases of the trust funds? I must give this some more thought before commenting further. You did mention the mechanism to create money used by the banks today. Really? You want our money to continue being created based on increasing debt rather than as a reflection of production? Well, okay, but I disagree.

    Finally, Tom and Pat, I don’t want it to be said that I claim to be faultless or will not make a mistake. In my last comment, I stated that you, Pat, would be forced to divest shares of your company to your employees. Tom said that I was mistaken in this, so I double-checked and he is correct. I obviously mis-read something and was not careful enough to double-check before posting. I sincerely apologize for this and hereby retract the statement. So, Pat, you can make your business as successful as you desire and, as long as you don’t incorporate, put whatever money the government doesn’t take from income tax into the bank. However, Kelso does advocate a higher income tax for you as your business grows as well as some interesting inheritance tax proposals you should check out. Don’t worry, though, we all know we can rely on the highest branches of government to stick to both the letter and intent of the law and do what’s best for society as a whole. We can trust that they won’t take Kelso’s mandate for the government to ensure wide ownership along with their current interpretation of the Commerce Clause (that it allows them to regulate virtually everything) and use it to simply further the current Keyensian method of wealth redistribution that relies on the continued existence of a very wealthy class. Can’t we?

  34. Stephen Peterson

    @Viking
    I’m only going by what I remember from Belloc’s “The Servile State” (so, would the Bellocites out there please correct any mistakes I might make), but, my understanding is that with the confiscation of the monasteries, property became concentrated into a relatively small number of hands. Because the industrial revolution hadn’t started yet, the means of production was tied to the land quite firmly, so whoever controlled the land also controlled the means of production. The new plutocracy that was created, therefore, was the new aristocracy of the capitalist system.
    Later, when the industrial revolution came about, the same families that were the wealthy landed class were also the ones who were able to invest in capital projects, and those who did because industrialists. It was only after this period that the means of production was not necessarily tied to vast landholdings, so it because possible for someone to be a capitalists without being the owner of vast estates.

    In relation to your other comment, the guild system doesn’t stop the masters from being small-scale capitalists. What it does do is limit the amount of control any one person has on the economy. If you are one master in a town where half the other households also boast at least one master, the economy of that town doesn’t rest upon you. By contrast, if a city only has one major employer and that employer decides to close shop, the entire city will be devastated.
    The anti-combination laws, in fact, further control the amount of market share a single owner can have. The object of the exercise is to have as many capitalists as possible, each with sufficient market share to meet the household needs but none with so much market share so as to deny another household a share in the market.

  35. Thank you for both of those responses, Stephen. But taking them in order: my point on capitalism, perhaps very poorly made, was that economists for the past few centuries have made a clear distinction between “capital” and “land”. Indeed, together with “labo(u)r” they make up the three factors of production. Therefore, “capitalism” could not have made its appearance prior to a preponderance of economic activity being controlled by those with capital assets, regardless of whether they had land or not. And (my theory goes on) this did not happen until several generations, if not centuries, after these confiscations.
    As to the second point, that about the masters in the guilds, if the Medieval guilds excluded apprentices and journeymen from voting, only the masters having the franchise, could not this lead to collusion among the masters of various towns of an anti-competitive nature? And if we DO allow the apprentices and journeymen to vote, this would be venturing upon new territory in human history, so the half-millenium of economic bounty and justice which David believes prevailed has to be deemed irrelevant. (That is, unless this change is seen to be minor, which it doesn’t seem to me to be.) And this ties in with the belief, which my suspicion is that most here share, that the economically powerful can largely dictate their own regulation. If the masters have so much power, how do you keep it within bounds? It strikes me that the towns and counties, where possible, might want to do their own regulation.
    Comments from anyone? (It doesn’t have to be from Stephen, tho he’s certainly welcome to do so.)
    Best to all,
    Viking

  36. Stephen Peterson

    @Viking
    I’m aware of the distinction between land and capital. And, yes, capital really did exist before the industrial revolution. It existed before Protestants. It existed before Christianity. Back on the farms, you might think of the odd piece of farming equipment as capital, (e.g.. ploughs, animals, scythes, etc.) and that would be true. But, more significantly, all the grain that is stored for seed, as well as the grain stored to feed the labourers until the next harvest – that’s capital! Without sufficient capital, you might have enough seed for sowing but you can’t feed your family or your workers before the next harvest and might well have to sell your land to survive.
    When the great landowners took the land from the monasteries, they took this capital also, and the land they controlled enabled them to control the production of more capital. Thus they became the dominant capitalists. When the smallholders found themselves short on capital, rather than being helped out by their neighbours, which is what might have happened in the “good old days”, they were bought out by the dominant landowners, further increasing their domains. All that happened in the industrial revolution is that the links between land and capital were weakened.

    “If the masters have so much power, how do you keep it within bounds? It strikes me that the towns and counties, where possible, might want to do their own regulation.”

    That’s a reasonable request, and I’m fairly certain it did happen where necessary, but its not the most important consideration.

    “… if the Medieval guilds excluded apprentices and journeymen from voting, only the masters having the franchise, could not this lead to collusion among the masters of various towns of an anti-competitive nature?”

    The answer to this question lies in the nature of the medieval guilds. They were economic societies, yes, but they were also religious fraternities. Each guild was named after a saint or a mystery. Each was a patron of the parish church or cathedral. Each had a chaplain appointed by the ecclesiastical authorities. Each discussed religious observance in its meetings as well as economic interests. The masters, thus, had a strong moral sense. They were not the capitalists of today who are only expected operate on the principle of self-interest and need to be regulated before they do the correct thing. The masters of that time were expected to behave morally according to the religious principals of the society in which they lived. If they didn’t, they could be expected to be denounced from the pulpit and face the backlash of their fellow townsmen. It’s not much fun living in a small town where everyone hates you.

  37. Stephen Peterson

    Oh, and I forgot to point out, they would probably end up burning in hell for all eternity, which is considerably less fun than being hated by everyone.