Monday, January 09, 2012
Distributism 101: The two economic fallacies
In this first in a series of posts on the economic theory of Distributism, I want to explain what it is and how it differs from the two extremes in economics: libertarian capitalism and liberal socialism.
Distributism is an economic and social theory that has been gaining a lot of attention for several reasons, I think. The first is a sort of revival in interest in the thought of G. K. Chesterton is recent years. The second is that many of the ideas articulated by Distributists like Chesterton, Hillaire Belloc, E. F. Schumacher--as well as the more contemporary Wendell Berry, seem to be underly the thinking of Philip Blond and the Red Tory movement in England.
Distributism is the idea that capital should be spread widely in society--not concentrated in the hands of government and not concentrated in the hands of big business.
The problem with the Occupy protesters is not that they are wrong about a small number of capitalists having too much power: they're problem is that they seem to think that the solution to the problem is a more powerful government. And the problem with the critics of the Occupy movement is, first, that they think there is no economic problem; and, second, that they think the only right kind of economy and society is a libertarian capitalist one.
Our economic discussion, in other words, is cast in a Scylla and Charibdis form: either you are a capitalist and right (or wrong) or you are a socialist and you are wrong (or right). Well, to put it simply: no, not necessarily.
The best simple introduction to distributist economic ideas is Hillaire Belloc's Economics for Helen, a book out of print for many years, but now back in print thanks to IHS Press.
Belloc makes a distinction that could serve as the first lesson for anyone interested in knowing more about Distributism, a distinction that makes sense of so much of the nonsense in the debate over the Occupy movement and its critics: There is economics considered theoretically and economics considered practically--theoretical economics, if you will, and applied economics.
On the one hand, theoretical economics focuses on the way economics laws work. On the other hand, applied economics tell us what the economic state of affairs ought to be. The main problem in economic debates between so-called conservatives (who are really liberals [in the classical sense] on economics) is that they emphasize the theoretical aspect of economics in disregard of the applied, and the problem of the so-called liberals (many of whom are really socialists) emphasize applied economics in disregard of the theoretical.
In regard to the emphasis on theoretical economics, the law of supply and demand and the law of diminishing returns really are all they're cracked up to be. The Law of Comparative Advantage compares very advantageously, and Say's Law does just what Say said. The market, in other words, works in the abstract and in the aggregate. If it were to operate in total freedom without any interference it would produce the most efficient result--in the abstract and in the aggregate.
The trouble is that all the equations and analyses of the increasing mathematical discipline of economics only tells us about those things that are quantifiable. The gross national product may be higher than it's ever been, but that doesn't mean people are happier than they ever were.
To say, as the libertarian capitalists say, that we should just get out of the way and let the market work, is a value judgment, and one that assumes that the kind of abstract, theoretical efficiency that the market produces is the best state of affairs. And often this value judgment of the best state of affairs is spoken of as if it were a judgment that was part of theoretical aspect of economics, when, in fact, it's not.
Economics (in its theoretical sense--applied economics is really a part of politics) is like mathematics: it can tell us how to get to the right amount of whatever it is we want: it cannot tell us what the right amount is. Economics, like math, is completely theoretical in that respect. Economics cannot tell us what is the best allocation of resources: it can only tell us what we should do to get the allocation of resources we already know is, in fact, the best.
The mistake that assumes that the unfettered market automatically produces the best outcome is the typical mistake of capitalists, and it results from the overemphasis on the theoretical aspect of economics.
The second mistake--that made by socialists--is the mistake of thinking that we can merely transfer more power to well-intentioned big government and trust it to do the right thing regardless of the actual quantifiable damage it can do.
The means to success, thinks this school of thought, is to get together, pass policies with nice sounding names (legislation with "children" in the title always works), and simply command that these good things happen. Unfortunately, because of their disregard for the theoretical aspect of economics, there are usually unintended consequences of these actions. Because of the ignorance of laws of theoretical economics, these actions often result in the mitigation of the sought-for good result or the accentuation of some economic evil that was unforeseen.
Great Society programs, intended to help the poor, instead helped foster and sustain an increasingly permanent underclass through a set of bad economic incentives. Minimum wage laws, intended to raise the wages of workers in low paying jobs, often simply resulted in higher unemployment for those seeking entry-level jobs.
The first mistake is utilitarian, since it sees mere quantifiable results as the measure of economic success, and sees quantifiable results as the test of economic success. The second mistake is romantic, and sees good intentions as the test of economic success.
Neither takes real human beings into adequate account.