Capital Kills Its Own Market
Economics, Hilaire Belloc — Posted by Hilaire Belloc on May 28, 2011 3:42 PMThe growing monopoly of production of goods, and of their transport and distribution through retail trades, is familiar to all of us. We have already seen how unrestricted competition, followed by mergers, puts these affairs into fewer and fewer hands.
Consider the social effects of this: (1) It makes the total goods available arbitrary in amount, that amount being dependent upon the interest or calculations of a few controllers. Suppose an extreme case which has no actual existence, but illustrates the principle. Suppose one man in a community of 1,000,000 men controlled all the land and all the capital: that is, the machinery and the reserves of seed, food, clothing, housing, etc.
It might not be to his advantage or caprice to set men to work save for satisfying his own needs. He could not set them all to work, or even most of them to work, to his advantage, though he might do so out of desire for the public good. But, it may be said, he would want to sell the goods which he ordered to be produced. Whom would he sell them to? He might try to sell them abroad, with increasing difficulty, because are more and more keeping out foreign goods. If he sells them to his own destitute dependents they can only pay with such sums as he doles out to them.
Of course, I say again, this is only an imaginary condition. But the smaller the number of people who control production, the nearer you get in reality to this state of things.
(2) Under industrial capitalism, that is under a state of affairs in which a few people control the system of production, and distribution and exchange, and the great mass of people are dependent on them, it pays the controllers to give the great mass of people as small purchasing power as possible. For under capitalism, production, transport, etc., go on for profit. The difference between values produced and the wage cost of producing them is their profit, and the smaller the wage-cost the greater the profit. In other words, “Capitalism kills its own home market.”
Those are the two principal material disadvantages of capitalism as we now have it. They are translated, in the actual world, into the terms “Unemployment” and “Insufficient purchasing power.” So long as control is in few hands and gets into fewer and fewer hands-these evils must grow larger and larger.
But the spiritual disadvantages of control by few and yet fewer men, over the process of production, transport and the rest, are even worse than the material disadvantages.
These spiritual disadvantages take three main forms. First there is loss of choice: the individual cannot exercise free will in taking up this and that which he likes and rejecing this and that which he does not like. More and more, demand does not call forth supply, but supply imposes itself on demand. There is increasing loss of freedom in selection, and to such lack of freedom man is more and more constrained.
And the second spiritual disadvantage is the counterpart of this: an increasing uniformity in the pattern of existence. It has been well said that “multiplicity is life.” When men are all getting the same sort of things turned out in the same way and on the same model by the hundred million, life loses its zest. Complete uniformity is death.
The third spiritual misfortune is this: that the mass of men fall under the will of a few. They not only fall under the will of a few controllers—called “employers” or “officials”—upon whom their wages, and therefore their very existence depends but, conversely, their own wills are gradually atrophied. That is the worst evil of all: the activity of the will is essential to the dignity of man. It is normal to man, and the rejection of it beyond a certain degree is increasingly harmful to man.
Here we ought to distinguish between two things which are often muddled together: voluntary subjection and enforced subjection. Any man choosing a profession surrenders his will in part to the rules of the profession. The sailor and soldier do it more than the civilian; those in the religious life do it most of all. But if they make that surrender of their own free will, that free will remains intact. It is otherwise when they are compelled to monotony and to dependence upon the will of others.
Now, there is a last evil connected with the growing diminution in the numbers of those who control and the growing increase in the numbers of those who are dependent. That evil is perhaps the worst of all. Ii is the evil of the bad habit.
When any bad process begins there is, in its first stages, a memory, a tradition, of better things. The old and better state of affairs still possesses what physical science calls “acquired momentum.” So it is with freedom when monopoly of control is growing up. All the older people can remember real competition and a fairly good division of property. The younger people may not remember it, but they hear what their elders remember, and are still sufficiently in touch with the past to have about them the atmosphere of economic freedom, though they have lost the reality of it.
A human generation is short. When it has lost what it once knew, habit turns the new conditions into matters of course till the new conditions come to seem almost part of the universe. At least it becomes impossible for men to imagine what the older and better state of affairs was like.
Now this habit in any evil, but especially the habit of dependence, is what makes evil permanent; and as things are now going there is a rapidly increasing dangers that his condition of dependence upon a few, and of accepting monopoly of control over our lives, will become second nature. If we allow that to happen by allowing the gradual decay of individual property and freedom to continue unchecked, it will be impossible to return. That is the real danger when we pass the point after which reform becomes practically impossible because the mind cannot conceive it.
Here in England, where I write, we have had within my own lifetime a striking example of this. When I was young there was a strong movement still in existence for turning leaseholds into permanent property. The object was to transform men who paid rent into men who owned their houses and farms. Today the idea has almost disappeared. You get increasing numbers who are supposed to own their houses, but who, as a fact, are paying tribute on loans. Their houses and land are not owned by themselves but by credit societies, and the vast majority, who do not even nominally own their houses, no longer make an effort to do so, nor ask for a reform of the law which would permit them to do so.
That is only one example. This effect of habit is to be seen on every side, and if we do not bring about a reform in time, the second generation after our own will have forgotten what economic freedom is.
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Same song, second verse regarding the editorial-voice of this sad web-site. You people try to create a dense fog built on innuendos and misleading statements — outright fantasies of a man who died decades ago.
But in the light of Chris let us follow Him in Truth.
Let us avoid promoting fear in the hearts of men because you want their souls. Let us let the freedom of men — their great gift of freewill — reign on these pages in Truth.
Let the facts break the fog which is spread on these pages!
Consider reality:
Total USA Population: 307,006,550 – Jul 2009
Total USA businesses: In 2009,there were 27.5 million businesses in the United States.
What do the distributionists want to mislead you to believe?
Using fear, uncertainty and doubt — obfuscation, misdirection and outright lies, they want you to believe we live in a society full of monopolies.
I’ve provided actual facts above. What do they purport through Belloc — nothing but innuendos and false rabbit-holes:
“Suppose one man in a community of 1,000,000 men controlled all the land and all the capital”
edit note: They want you to believe the ratio is 1 to 1 MILLION!!!!! The true ratio is more like 1:11.
They further say:
“The growing monopoly of production of goods, and of their transport and distribution through retail trades, is familiar to all of us.”
edit note: It is? What growing monopolies of production are we talking about Apple iPhones — which are being destroyed by manufacturers of Android phones? Wherefore art thou oh monopolies?!??
Where are these monopolies we are told to be fearful of?
If there be any proper use of the adjective “evil” on this page, it should not be pointing from within Belloc’s false words in our modern times, but outwards to those sad proponents of distributism in our times.
We have been fooled so many times by the false prophets of economic theory — one karl marx comes to mind here.
Let us not be entranced by another.
“Suppose an extreme case which has no actual existence, but illustrates the principle. ”
Ave Maria: do you understand the concept of a hypothetical example? If you do, then it’s not Belloc who is trying “to create a dense fog built on innuendos and misleading statements”.
I love the idea, but I’m trying to understand how a distributist intends on distributing? What is the key to getting out of our current situation of productive land owned by a few and distributed back into the hands of the working family?
I like the idea of worker guilds to guide industry, although I’m a wage worker in a corporation that is not using my craft, anywho, what is the plan for guilds or their workers unlocking land held by landlords who enjoy being a better then equal? Is there a plan at all?
Are Distributist waiting for our words to fall on enough ears, in this case land owner ears, to create reform and the sale of land at fair prices? Are we proponents of a Land Value Tax or Land Rent? Are we Are we waiting for a bloody revolution or a spiritual one? I’m all ears although mine aren’t land owning ears, yet.
That’s the trouble with Capitalists: they just cite statistics to look scientific. They don’t really get Belloc and other Distributists. AveMaria is quite typical of a liberal Capitalist, only thinking of the supposed good side of Capitalism, ignoring the bad side, such as highest unemployment in the U.S., the value of the dollar gone down to almost nothing.
AveMaria if you want statistics, here are more (courtesy of http://theeconomiccollapseblog.com/archives/20-questions-to-ask-anyone-foolish-enough-to-believe-the-economic-crisis-is-over):
#1 During the 23 months of the “Obama recovery”, an average of about 23,000 jobs a month have been created. It takes somewhere in the neighborhood of 150,000 jobs a month just to keep up with population growth. So shouldn’t we hold off a bit before we declare the economic crisis to be over?
#2 During the “recession”, somewhere between 6.3 million and 7.5 million jobs were lost. During the “Obama recovery”, approximately 535,000 jobs have been added. When will the rest of the jobs finally come back?
#3 Of the 535,000 jobs that have been created during the “Obama recovery”, only about 35,000 of them are permanent full-time jobs. Today, “low income jobs” account for 41 percent of all jobs in the United States. If our economy is recovering, then why can’t it produce large numbers of good jobs that will enable people to provide for their families?
#4 Agricultural commodities have been absolutely soaring this decade. The combined price of cotton, wheat, gasoline and hogs is now more than 3 times higher than it was back in 2002. So how in the world can the Federal Reserve claim that inflation has been at minimal levels all this time?
#5 Back in 2008, banks had a total of 27 billion dollars in excess reserves at the Fed. Today, banks have a total of approximately 1.5 trillion dollars in excess reserves at the Fed. So what is going to happen when all of this money eventually hits the economy?….
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AveMaria is living in a dream world, sadly, not reality.
@AveMaria
> Wherefore art thou oh monopolies?!??
Here’s an article that might help you:
http://en.wikipedia.org/wiki/Monopolistic_competition
Note a few features: there is a loss of surplus, firms will operate with excess capacity, and firms have pricing power, setting their prices below long-run average costs (which keeps little guys out of the market).
Think about the low-to-mid market chain restaurants: Red Lobster, Applebee’s, Outback. These are examples of firms operating under monopolistic competition. The Economic Liberal (aka Capitalist) tends to like the arrangement by which they can start national chains pretty well because it because it concentrates (short term) profits into their hands and it is easy to formulate an exit strategy (i.e. fire everybody, turn the buildings back over to the landlords as the leases expire, and liquidate the kitchen equipment into the used market). Then come up with the next restaurant concept and do it all over again. In the meantime people get restaurant meals cheaper than they would otherwise.
Distributists dislike the economic institutions that make nationwide chains possible because monopolistic competition effectively denies ordinary people who could own and operate a (single) restaurant the ability to do so because people are used to having meals priced below the “Just Price” (an admittedly difficult concept) and they have a hard time attracting a following through the clutter of advertising.
An example you can probably relate to. I personally would greatly prefer to go to Bartolino’s, Zia’s, or Del Pietro’s or Charlie Gitto’s for Italian food. The first place my wife thinks of is Olive Garden. And people know she likes Olive Garden, so they buy her gift cards good only at (drum roll) Darden Restaurants. Go ahead and Google that. So family owned and operated restaurants lose out. Not because Olive Garden is particularly better, but because they’re better known.
On the flip side, I have eaten mediocre and worse meals at family owned and operated restaurants and have had my wife with me. She doesn’t want a poor meal — she expects at least “pretty good” and isn’t nearly so adventurous as I am. Well, that’s what you get with a chain: “pretty good” at a price the family owned restaurant can’t match for the same quality experience. The guild-oriented distributists object to both circumstances: they want the guild to be responsible for quality and they want to keep prices up so nobody’s prevented from entering the market by too-low prices. I think they’re over-optimistic but we’ll probably never know.
There are distributists that focus on what you might term “modern” institutions. Check out Louis Kelso, for example. In any case, we can change the terms on which we create corporations to limit their scale and scope (why should we tolerate Microsoft buying Skype?), and to prohibit their accumulating “excess” cash on their balance sheets.
Anyway, almost dinner time…
t
I feel as though we’re aiming for a smaller target with the focus on showing the problems inherent in classically liberal economics. While these beliefs need to be handled, there seems to be a lack of focus on modern liberalism which is just as bad as capitalism. Personally I would guess there are more people off the rails in that direction in Catholicism (as the group most often focused on) than those who fall into capitalist errors. Modern liberal economics are usually only given a token mention in many articles as being wrong while the article focuses on classical liberalism. Not that we shouldn’t criticize capitalism, but maybe half and half so I know some distributist responses to issues on both sides of the spectrum.
Ave Maria, i don’t doubt that there are 27.5 million businesses in the US. But that would have to include: all Amway, Shaklee, Avon, and other such dealerships; small farms whose owners still have to have “main” jobs or pensions to support themselves; and branches of chains. (And probably a few of which i didn’t think.) That’s a long way from saying that many of those are economically independent.
Tom Leith, aren’t the various family-owned Italian restaurants, to take your main example, also monopolistic competitors? They don’t, after all, offer exactly the same meals for precisely the same prices in identical atmospheres with utterly interchangeable servers.
Joe, your remarks interested me. To be sure we’re on the same page, by “modern liberalism”, you do mean the ideology most often associated, in the US, with the Democratic Party, don’t you? (Which i consider quasi-socialist, btw.) That’s a good point if so, as even the American Republicans don’t have that classic liberal an outlook now.
Viking
Good comments. I am on the fence still with what is really happening, although I definitely see the demise of small businesses. Two comments. I work for a large company and lately we have been subjected to an increase in work rules. Its getting out of hand. With fewer and bigger companies controlling masses of workers I don,t like where were headed. Second, pro-capitalists and anti socialists believe that accumulated wealth by the few represents a bigger pie and they would rather have a small piece of a big pie than have a smaller pie.
@Viking What distinguishes the various family-owned Italian restaurants from Olive Garden is their pricing power: they haven’t got enough to influence the general price level in even one city much less several. Olive Garden has.
Further, “exactly the same meals for precisely the same prices in identical atmospheres with utterly interchangeable servers” makes for perfect competition, not monopolistic competition. They all try to distinguish themselves somehow to avoid perfect competition — every small businessman wants a sort of “monopoly” even if it is only geography that makes him unique in his market. So around here, Del Pietros is a traditional Italian restaurant that isn’t on The Hill. (Which is the PC version of “Dago Hill” in St. Louis). Charlie Gittos is a more expensive traditional Italian restaurant that is on The Hill. Then there’s Tony’s downtown: if you really want to impress all those stars from the travel guides are deserved, but you’ll easily spend $150 per person and $200+ isn’t too tough. Before a tip. (Gee, I have a birthday coming up…) The last thing any of these restauranteurs want is perfect competition (price falls to marginal cost) because it is a sure recipe for failure. Perfect competition is precisely what Guilds are meant to prevent. Survival depends on prices at least meeting long-run average cost, and in the case of a family business, “long run” is probably about five years. Among the Italian families that started these restaurants there were probably gentleman’s agreements not to encroach on one another’s turf — no Guild necessary. Of course, this couldn’t be discussed on the phone.
Tom, I realize that what I was describing in the negative was PC rather than MC. That was my whole point. Perhaps I misunderstood yours tho. You seemed to be saying, to me anyway, that MC was inherently favorable to oligopolists, and I was responding that many small businesses would also be conducted in an MC manner. If I mistook your thoughts, my apologies.
Viking
@Viking — Oh, I see: yes I misread your remark. I read “don’t they” and you actually said “they don’t”.
But we don’t say the one-off restauranteur engages in monopolistic competition because he can’t influence general price levels.
Hi again Tom,
Assuming “one-off restauranteur” means a single restaurant, not even a “chain” of two, I don’t believe that meets the definition of “monopolistic competition” or MC. (You didn’t put an extra “f” there, did you, since “one of (a kind)” would make more sense, to me at least?) MC, as I understand it, simply means a market where price is not the sole consideration in purchasing decisions. In any event, the influence on price levels is relative to the specific market. A hundred Olive Gardens in the greater NYC area, with its 20 million plus, would likely have less effect than a single family-owned restaurant in an urban region of under 200 thousand.
Btw, I should confess here, again, my failure to see anything wrong with either chains or bigness if the firm in question is worker-owned.
Viking
Capitalism, defined as a domination of labor by capital in a society, historically have always existed and been possible through State intervention. The so called “laissez-faire” of the 19th century, was very far from the ideals of a genuine free market, as it was a heavily distorted market economy to favor the owners of capital. One of the most neoliberal Capitalism fanatics like Ronald Reagan, was in fact the most protectionist president in post war American history. So it is a grave error to conflate “free market” and “Capitalism”. A genuine free market will favor the poor and the working class, not the rich and the Corporate owners.