Taking “free markets” from rhetoric to reality
For three decades free-market leaders have tried to reverse longstanding Keynesian economic policies, but have only produced larger government, greater debt, and more centralized economic power. So how can we achieve a truly free-market system, especially at this historical moment when capitalism seems to be in crisis?
The answer, says John C. Médaille, is to stop pretending that economics is something on the order of the physical sciences; it must be a humane science, taking into account crucial social contexts. Toward a Truly Free Marketargues that any attempt to divorce economic equilibrium from economic equity will lead to an unbalanced economyone that falls either to ruin or to ruinous government attempts to redress the balance.
Médaille makes a refreshingly clear case for the economic theoryand practiceknown as distributism. Unlike many of his fellow distributists, who argue primarily from moral terms, Médaille enters the economic debate on purely economic terms. Toward a Truly Free Marketshows exactly how to end the bailouts, reduce government budgets, reform the tax code, fix the health-care system, and much more.
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About the Author
John C. Médaille is the author of The Vocation of Business: Social Justice in the Marketplace and an instructor at the University of Dallas. He writes and lectures frequently on economics. Médaille has more than thirty years’ experience in management at large corporations and as a small businessman, and he served five terms as a city councilman in his hometown of Irving, Texas.
Read an Excerpt
Toward a Truly Free MarketA Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More
By John C. Midaille
ISI BOOKSCopyright © 2010 John C. Midaille
All right reserved.
Chapter OneWhat's in a Name?
The most important thing, the first thing, in understanding anything is to get the name right. If you and I were to have a conversation on any subject, say horses, and you were to refer to them as "dogs" and I were to call them "cats," there is a good chance that some misunderstandings might arise-misunderstandings that could never be resolved until we decided to agree on a name for the thing we were talking about. This book is an attempt to make clear certain matters concerning the material relations between men, and to correct what I see as the greatest errors in the field that deals with these matters, the field known as economics. But before I could correct anyone else's errors, I had to correct my own. This book started with an essay that was published in the Distributist Review, entitled "The Economics of Distributism." But as I searched the text for errors, both theoretical and grammatical, I suddenly realized that I had missed the biggest error of all-the very title. This book, which grows out of that essay, has a slightly different title, but in that slight difference is a world of difference. I let the title of the essay stand, because economics has become the term under which most men recognize the topic, and because I did not have space to explain the difference within the bounds of the essay. But in a book I may at least make the topic clear, even if I can do nothing else. And my topic is political economy, which is to say, the only kind of economy that actually exists.
Economics vs. Political Economy
Economics is, of course, a discipline which has an enormous amount of power and prestige. But one thing it does not have is a history, or at least not much of a history; the term economics is of comparatively recent origin. None of the great political economists of the nineteenth century were familiar with the term economics. For Adam Smith, David Ricardo, Karl Marx, Jean-Baptiste Say, Nassau Senior, John Stuart Mill, et al., their science was political economy. In fact, the twenty-volume Oxford English Dictionary-begun in 1878, completed in 1928, and meant to be the final resource on all English words-does not even have an entry for economics, neither in the main portion nor in the supplement. Given the recent provenance of the word, it is important to understand how and why it got here. The term, in its modern sense, may have first been suggested by the British prime minister Benjamin Disraeli in 1844 as a way of separating the political economy from the pesky topic of morals. It did not gain any currency until 1890 with the publication of A. E. Marshall's Principles of Economics, which begins, "Political Economy, or Economics, is a study of man's actions in the ordinary business of life...." Note that Marshall uses the old term before the new one and makes them out to be synonyms.
But if they were synonyms, there would be no reason for the change. The difference between the terms is that the political economists saw their science as a humane science firmly embedded in human institutions. The new economists, on the other hand, saw their discipline not as a humane science, but as something in the order of the physical sciences, which operate independently of human intentions. They wished to "free" the discipline from all social contexts. Of course, the first casualty of this "freedom" was freedom itself, since the markets were now moved in the same way as were the stars: by inexorable forces whose course no man could alter. It is ironic to hear otherwise intelligent men speak of the "free" market while denying its very freedom.
The problem with the new economists was not so much that they were wrong, but that they were very nearly right. There are certain tendencies in human beings that allow us to make lawlike statements. People do tend to buy more of a product when it is cheaper, and they tend to make more of that product when it is dearer; between these two tendencies, we really can posit supply and demand curves, and we can, at least in the abstract, discover the equilibrium point between these tendencies. And while the result of our calculations will not be a law in the sense that gravity is a law, in that it cannot be violated, it will be lawlike: that is, useful enough for us to give useful descriptions of a particular economy. All of this is true. But the real difficulties in human thought come not so much as an argument between truth and error (pure error is too easy to spot), but between greater truths and lesser truths. Correct thought is a matter of arranging truths in their proper hierarchies, of not allowing a lesser truth to displace a greater, or of not reducing all truths to one truth. This last error is the besetting sin of economists because, to make economics work as physics works, guided by physical measurement and ruled by pure mathematics, they have to reduce man to a physical object in a world of physical objects. They have to reduce man's labor to a mere commodity, purchased at the lowest value like any commodity; they have to reduce man to an economic calculator, the mythical homo conomicus. Mostly, they have to divorce the economic question, as Disraeli desired, from any question of ethics. But one cannot found a science on a myth. Nor can one reduce man to something he clearly is not, or at least is not completely. Man occupies a moral universe as well as a physical one, and to ignore the place he occupies is to lose the man and hence lose the science. Man, in his relations with other men, is guided by whatever notions of justice he has. Even the man who claims to divorce the questions of morals from the economy will always be attempting to give a moral justification for his actions; the plutocrat who exploits his workers will rationalize it by claiming that in the end the exploitation adds to the commonweal, or that he is simply acting under the forces of "economic" nature. But if there is no question of justice, why bother to justify it?
Without understanding the nature of man, we cannot hope to understand the nature of his economic relations. The new "scientists" hoped to trade good justice for better science, but it was a bad bargain; in losing one they lost both. In losing the ability to properly describe their subject (the human person) they lost the ability to properly describe anything about him, and most especially his economic systems. They ended up not with a science, which could serve as an arbiter of questions disputed under the terms of the science, but with a series of warring ideologies among which there can be no arbitration, indeed no communication, because they have no common terms and no common understandings.
I want to be very clear here that I am not denying economic science. Indeed, I am affirming it. I am, however, denying that it is a physical science; I deny that it can draw its proper methodology from physics, astronomy, chemistry, or any other physical science. I affirm that it must be a humane science and use the methods of those sciences. In a later chapter, we will delve more deeply into the implications of this. For the moment, we can say that the humane sciences all rest in some vision of human justice, because justice is the virtue that regulates proper relations between man and man, between a man and his society. If we lose justice, and most particularly distributive justice, we lose any hope of science; indeed, we lose any hope for society. Here then, is the over-riding theme of this book: Economics, or more properly, political economy, cannot be a proper science unless it is a humane science; to be a humane science it must embody some notion of justice, and particularly of distributive justice. Indeed, as a practical matter as well as a theoretical one, there can be no balance between supply and demand without distributive justice; the moral question and the economic question are, in reality, one question. Economic equilibrium cannot be divorced from economic equity, and the attempt to do so will lose both equity and equilibrium; the economy will be unable to balance itself, and so will either fall to ruin, or to ruinous government attempts to redress the balance.
The Failure of the Economists
Our nation-and the world-is currently in the midst of a grave economic crisis. One salient fact about this crisis is that 90 percent of all economists failed to note the coming of this disaster. Further, those few who did give a warning were marginalized and ridiculed as "Dr. Dooms." While it is certainly true that some of those who sounded the alarm are perpetual naysayers, always crying wolf even in the best of times, it is not true of all of them. Further, it does not tell us why the bulk of the profession failed to note the coming of this train wreck. Nor should we be surprised by this failure, since 90 percent missed the coming of the last disaster, and the one before that, etc. Indeed, the record of the economists in predicting economic failures is nearly perfect: they have missed all of them.
With that disheartening statistic in mind, it would seem that we have some warrant for suspecting that the science of economics is, at this stage, incomplete, and hence incapable of giving a complete description of any economy. And if it cannot describe an economy, it cannot predict its course. Most importantly, however, such an incomplete science will not be able to make any rational policy prescriptions, and any prescriptions it does make are only likely to make the problems worse, to deepen and lengthen the recession. Therefore, our first task is one of understanding. We must examine the historical and theoretical roots of the science and correct what errors we find. Only then can we deal rationally with the problems at hand.
The Failure of the Distributists
Although this book is a critique of modern economics, it must start with a critique of modern distributists. I say "modern" distributists because distributism itself is nothing more than the rediscovery of an older view of economics. Until the sixteenth century, there was no real dispute that economics was a colony of ethics, rooted in the political order and dependent on distributive justice. No philosopher or theologian worthy of his stipend, beginning with Aristotle, was without his economic commentary. He felt it merely part of his natural function to comment on the real affairs of real men, and the economic and political orders were simply part of that commentary. Very nearly the full weight of human opinion, taken as a whole, comes down on the side of the distributists. While distributism adds to modern economics precisely what it lacks to become to a real science-the science of political economy-distributists themselves have often been reluctant to put their case in economic terms. The distributists have often argued from moral terms; they have placed their arguments in the necessary connection between free property and free men; they have argued on agrarian terms, on the natural rhythms of life and social order often disrupted by modern capitalism; they have argued from Roman Catholic teaching and the social encyclicals. But on the whole, they have been unwilling, or (I'm afraid) unable, to enter the economic debate on purely economic terms.
This is not a new problem. G. K. Chesterton and Hilaire Belloc, though they had an intuitive feel for political economy, lacked both the training and the interest to formulate a purely economic theory. Belloc's The Servile State was a shrewd critique of the economic order of his day, and it has proved prophetic about the decay of that order into a quasi-socialist order, dependent on big government, which is itself dependent on big capital. But even after The Servile State, neither The Restoration of Property nor Economics for Helen was of sufficient depth, economically, to establish distributism as a separate and distinct economic theory. Likewise, Chesterton's What's Wrong with the World and other writings showed great economic insight but little economic theorizing. This is unfortunate because the great opponents of the distributists in Chesterton's time, the Fabian socialists, insisted on first-class economic research. Although both Chesterton and Belloc were popular figures, and distributism a popular movement, the Fabians were able to carry the day because they could focus the debate on purely economic grounds, grounds the distributists were reluctant to enter.
This is not to deny that some great economists have been guided by the same principles as distributism. John Ryan, Heinrich Pesch, E. F. Schumacher, R. H. Tawney, and many others have made great contributions to our understanding of the political economy. Nor is this to deny that distributist practice has had tremendous successes: the longstanding success of the Mondragsn Cooperative Corporation, with its fifty-year history and eighty thousand worker-owners; the remarkable distributive economy of Emilia-Romagna, where 40 percent of the GDP is from cooperative firms, and where the standard of living is one of the highest in Europe; the "land to the tiller" program of Taiwan, which lifted that nation from grinding poverty to economic powerhouse in only one generation; the success of so many Employee Stock Ownership Plans (ESOPs); and the success of micro-lending programs across the world. Indeed, distributist principles go from triumph to triumph, while capitalist societies go from government bailout to government bailout.
Despite these successes in both theory and practice, however, it is too often the case that in any discussion of economics the distributist is likely to be the least well-versed in the science; he is, too often, the one least able to place his argument in economic terms, and too ready to retreat to moral arguments. This has unfortunate consequences for distributism as a movement. First, we often fail to convince others of the economic soundness of our case. Second, those distributists who have an interest in economics find insufficient sustenance in distributism, and often drift off to Austrianism, Keynesianism, or socialism, theories which are nearly the opposite of distributism. Finally, we cannot recognize the similarities between our own positions and allied positions like mutualism and Georgism. In failing to recognize these similarities, we fail to recognize our natural allies. We even fail to recognize, too often, that which is valid and useful in neoclassical and Keynesian theories. All of this gives distributism a parochial cast. We end up marginalizing our own theory, simply because we often have a marginal understanding of the theory.
If the distributist would only enter the economic lists, he would find weapons and armor enough to stand against any opponent. Our theory is competitive at the intellectual level and thoroughly demonstrated at the practical level; we fill the gaps in the science of political economy that neoclassical economics, and all its variants, cannot. We do not need to stand on the margins, but in the mainstream. In this particular historical moment, when capitalism itself seems to be in crisis, we need to make our voices heard, and heard in a language the world can understand. This book is not the great tome that distributist political economy deserves (that is a task above my abilities and one that I leave to the next Pesch, Tawney, or Schumacher); it is intended to give the nonspecialist reader the intellectual arms and armor necessary to enter the debate on more equal terms.
Chapter TwoIf It Ain't Broke ...
Does Capitalism Work?
Distributism calls for a reform of economic systems in general, and capitalism in particular. And yet, what is the point of calling for reform in a system that works, which is fully functional? Here, common wisdom must guide us, namely, "If it ain't broke, don't fix it!" At this point, many people would interrupt to say, "Just look around you, dummy. Of course it works! We are the richest and most powerful nation in the world, thanks to capitalism and the free market. Further, our system is so successful that it has been adopted by every prosperous nation in the world-even Communist China!" Well, it would be hard to dispute that America is a powerful country; what is not so clear is that it is a capitalist country, or has been one, for some time now.
In asking the question of whether or not capitalism is broke, I do not mean that there are certain imperfections in it, or that from time to time it experiences difficulties. It would be unreasonable, indeed churlish, to demand from any great system a standard of perfection that human beings and human systems simply do not have. And since we must allow for imperfections, we must ask, "How do we judge whether capitalism-or any other system-is working?" Let me suggest that the most unassailable standard of judgment for any system is the standard that adherents of the system establish for themselves. We could criticize capitalists on any number of grounds, but the only ground that would have validity for a capitalist is the ground he establishes for himself. Therefore, in judging whether or not capitalism works, I use only the criteria that an intellectually honest capitalist would use for himself. By purely capitalist standards, capitalism does not work and never has.
Excerpted from Toward a Truly Free Market by John C. Midaille Copyright © 2010 by John C. Midaille. Excerpted by permission.
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Table of Contents
ContentsChapter 1 What's in a Name?....................1
Chapter 2 If It Ain't Broke ....................11
Chapter 3 Political Economy as a Science....................23
Chapter 4 The Purpose of an Economy....................35
Chapter 5 Equilibrium, or The Tao of Economics....................45
Chapter 6 Justice and the Political Economy....................59
Chapter 7 The Fictitious Commodities: Money....................71
Chapter 8 The Fictitious Commodities: Labor....................91
Chapter 9 The Fictitious Commodities: Land....................101
Chapter 10 Property as Proper to Man....................113
Chapter 11 The Just Wage as the Key to Equilibrium....................125
Chapter 12 Taxes and Tax Reform....................139
Chapter 13 The Proper Role of Government....................151
Chapter 14 The Cost of Government....................163
Chapter 15 Taxes, Economic Rent, and Externalities....................179
Chapter 16 Distributism and Industrial Policy....................191
Chapter 17 Distributism and the Health Care System....................207
Chapter 18 The Practice of Distributism....................223
Chapter 19 Building the Ownership Society....................235