Bernardo Aparicio García
President, Dappled Things
“It’s the economy, stupid.”
It is a phrase most people associate with Clinton and capitalism, but I find it equally worthy of Marx: all human realities are ultimately reducible to economic ones. It is also a cliché, by the way, and one so popular that it has spawned counter-clichés of its own. One of my favorites goes “It’s the culture, stupid,” which perhaps is not surprising given my involvement in this literary journal. Man—the lover, the poet, the builder, the philosopher, the worshiper, even the murderer—is a far larger and more mysterious reality than homo economicus. Yet for all that, it would be vain to deny, especially after the financial disasters of the last few years, that the economy (like other realities) has a powerful influence over the manner in which human beings live their lives, organize societies, and develop cultures. Hence, for those of us trying to pursue a Catholic vision of the good life, and a society that is compatible with it, economics is not a subject we can afford to ignore.
After the fall of Soviet communism, capitalism seemed to be the only game in town, but with the recent financial disasters, many have wondered if there may not yet be a third way. Among Catholics, this has led to a renewed interest in distributism, the economic system famously advocated by G.K. Chesterton and Hilaire Belloc. More and more, I find Catholics dividing themselves into capitalist and distributist camps. Such division is perhaps inevitable and not even necessarily a bad thing—after all, economic systems are not articles of faith, and a healthy debate about how to organize such matters in our society ought to help us arrive at a system that is more just and effective than its alternatives. Yet though everyone seems to have an opinion, I often find that there is much confusion about what capitalism and distributism actually are, as well as much ignorance about the legitimate insights of economics as a discipline.
Realizing that this is a poor starting point for a productive exchange of ideas, the editors of Dappled Things contacted two articulate proponents of these competing systems—John C. Médaille on the distributist side, and Robert T. Miller for capitalism—and asked them to share their thoughts and knowledge with us. Since our goal is not controversy but to assist our readers in establishing a firm foundation for thinking about these matters, we did not ask these two authors to critique the opposing position, but rather to explain their own. The specific proposition we asked each to advocate for is this: capitalism/distributism is the economic system that is most compatible with a Catholic understanding of the good life. Our hope is that this exchange will serve as a basis for future discussions in which there is less heat, and more light.
Catholic Moral Doctrine and Capitalism
Robert T. Miller
The editors of Dappled Things have asked me to opine on the question of which of two economic systems, capitalism or distributism, is more compatible with a Catholic understanding of the good life. This is hardly the kind of the question that lends itself to a succinct response, but if a short answer is required, it is this: capitalism and distributism are equally compatible with the Catholic understanding of the good life, if by that we mean that neither system violates the moral doctrines taught by the magisterium of the Catholic Church. This answer should surprise no one, for the magisterial doctrines of the Catholic Church entail very little about economics or even politics. They do not, for example, make any particular form of government morally obligatory, and thus the autocracy of the Roman Empire, the constitutional monarchy of Elizabethan England, and the democratic republicanism of the United States are all morally permissible. Similarly, Catholic doctrine does not make any form of economic organization morally obligatory; rather, a wide range of systems, including both capitalism and distributism, are morally permissible.
Now, I suppose the editors asked my opinion on this question because they expected me to argue that capitalism has some special moral standing in Catholic doctrine. Although I will not go that far, I will defend a more modest proposition, namely, that, for people like us in a society like ours, capitalism is the most reasonable choice among the various economic systems we might adopt. To defend this more modest proposition, I start with some deep assumptions about human life.
Among these, the deepest is that human beings, being physical beings, have material needs and so must organize the world’s material resources to meet them. Another deep assumption is that even modestly complex manipulations of material resources—let alone sophisticated projects like building transcontinental railroads, designing computers and their software, or refining petroleum products—require the cooperation of very large numbers of human beings. This point is vastly under-appreciated. In 1958 Leonard Read famously estimated that the number of human beings involved in producing an ordinary wooden pencil from raw materials to final product exceeds one million; nowadays, in a more complex economy, that’s probably a gross underestimate. Yet another assumption is that information about the various possible uses of resources is difficult to obtain and analyze and, moreover, changes very rapidly.
From a moral point of view, what we want from an economic system is that it generate and distribute resources in a way that maximizes the long-run probability that all members of society have enough goods and services to lead decent lives. One way to do this would be to appoint a central body authorized to allocate resources and charged with responsibility to ensure that everyone receives a fair share. This is socialism, and it has proved a very poor solution to the economic problem. There are two main reasons for this. The first concerns information: the central authority cannot acquire enough reliable information, much less process it fast enough, to allocate resources efficiently. This results in tremendous waste. Thus, in the former Soviet Union, warehouses full of unneeded machine parts sat and rusted while consumers found no toilet paper on the store shelves.
The second reason socialism fails is that, since the system requires that workers be assigned to jobs the central authority wants done, if there are not enough volunteers for these jobs, the central authority tends to resort to coercion. For instance, in 1947, under its infamous Control of Engagements Order, the Labour Government in Britain found itself ordering unwilling men into the mines under pain of law. Taken to its logical conclusion, socialism requires tyranny. Happily, most socialists have had the good sense and common decency to recoil from such consequences and so fail to carry their socialist principles fully into practice. There is, however, a less serious but more pervasive problem of a similar kind. That is, since socialism decouples effort and reward, workers in a socialist economy tend to give less than their best efforts. As an old Soviet joke had it, “We pretend to work, and they pretend to pay us.” The upshot is that socialist economies tend to be less productive.
Capitalism, of course, works quite differently. Its defining features are (a) clearly-defined and strongly-protected property rights; (b) a broad freedom of contract, which allows people to the transfer resources from one person to another; and (c) minimal government interference with this process of voluntary exchange. The combination of these three largely solves the problems that make socialism unworkable.
Where socialism relies on a central planner, inevitably inadequately informed, to allocate resources, capitalism relies on the price mechanism. That is, under capitalism, the price of a resource is set by the person owning it, taking into account the prices others are willing to pay for it, and these people—the owners of a resource and its likely potential buyers—generally have the best available information about the resource’s potential uses. The price thus impounds this information, and when the owner sells the resource to the highest bidder (or keeps it himself, if he values it more than the highest bid), the price system is effectively allocating resources in accordance with the collective judgment of interested and informed people (i.e., the market). Furthermore, prices can be changed very quickly as circumstances develop. The same system solves the problem of human cooperation. For, under capitalism, to get someone to work for you, you have to make it worth his while—i.e., you have to secure his free consent, generally by paying him. When the relationship ceases to be beneficial for a party, he may terminate it, usually on short notice. Once again, resources—in this case, the most valuable resource of all, human labor—is continuously reallocated to its best possible use.
The arguments in favor of capitalism are so powerful that virtually every society nowadays is more or less capitalist. Even in the former Soviet Union, consumers had money to buy the selection of consumer goods they happened to want. The realistic question is thus not whether we should have a capitalist economy; that question is essentially settled. The realistic question is which government interventions in the market will improve the generally satisfactory results that capitalism provides.
The first thing to see here is that it is a myth—a silly and ridiculous myth—that capitalists think that government should never intervene in the market. For one thing, we need government to define and protect property rights, to enforce contracts, and to settle disputes, most importantly through a system of courts and law enforcement. In addition, even the most extreme exponents of capitalism like Milton Friedman recognize that markets do not always produce the best solutions to economic problems. The reason is what economists call transaction costs: that is, sometimes markets fail to produce the best solution because the costs of transferring resources to effect that solution are too high. In such cases, it is sometimes (note: sometimes, not always) possible for the government to step in and effect a better solution than the market can provide.
Public roads are a good example. Although roads generate immense benefits, the market will never produce them, because there is no cost-effective way of charging the people who use them for the privilege of doing so while effectively shutting out people who don’t pay. Erecting tollbooths at the end of everyone’s driveway, as well as at the junction of one company’s road with another, would obviously destroy the value of the road. The turnpike—a long road with limited entrances and exits—is the exception that proves the rule here. Since the costs of charging people who use the road and excluding those who don’t pay exceeds even the very great benefit created by the road, the market will not supply roads. The solution is for the government to supply them and pay for them by requiring people to pay for them in the form of taxes.
Or take national defense. Security from foreign aggression is a great benefit, but nevertheless a rather peculiar one: everyone living in the country benefits from its physical security, regardless of whether he personally helped pay for it. For most goods and services, only the person who pays for them gets to enjoy them. When I buy a Ferrari, I own it, and no one may have the fun of driving it without my permission. But with national defense, everyone benefits, not just those who pay. In economic jargon, a strong military is a public good. Hence, if we left national defense to the market, although for almost everyone it would be worthwhile to pay something towards the defense budget, many people would refuse to do so in hopes that enough of their neighbors would pay up, thus allowing the non-paying people to capture the benefits of a strong military without incurring the costs. In economic jargon, such people are free-riding on the payments of others. If enough people free-ride (and human nature being what it is, people like to free-ride), there will not be enough money to pay for an effective national defense, and the great benefit of physical security will be lost. The solution to the free-rider problem is for government to tax everyone and use the proceeds to pay for national defense. This is true of public goods generally; they are best provided by government, not the market.
Or again, even on strict capitalist principles, sometimes government should intervene in the market because of what economists call externalities. Externalities are either costs (“negative externalities”) or benefits (“positive externalities”) resulting from a transaction but affecting non-consenting third parties otherwise uninvolved in the transaction. For example, if in operating a factory on my land, I pollute groundwater that seeps under your land, my activities are creating a negative externality for you. When I operate my factory, I will likely take no account of this cost to you, and so although the operations of the factory may be profitable for me and beneficial to my customers, they may result in a net loss for society when the costs falling on you are taken into account. In cases like this, even the committed capitalist thinks the government should intervene by prohibiting me from polluting the groundwater.
An analogous problem exists when an activity generates positive externalities. In such cases, some of the benefits of an activity flow to unrelated third parties who pay none of the costs of producing such benefits. Since the people providing such activities cannot charge the third parties for the benefits they receive, the market will tend to under-provide such activities. Hence, if an activity has significant positive externalities, the government should probably subsidize it, ideally by taxing the people who are benefiting from it but not otherwise paying for it. The classic example is educating children. Since the benefits of an educated population accrue not only to the persons being educated and their families but much more widely, it makes sense on capitalist principles to tax the population generally to support an educational system.
Beyond situations involving public goods or significant externalities, capitalists are rightly skeptical about government interventions in the market, and this is where capitalists and distributists part company. Consider the notion of a just wage. Suppose you think that prevailing wages for certain workers are below the just wage, and to increase wages you legally mandate that employers pay these workers at least a certain minimum wage. You intend to benefit workers, who receive too little, at the expense of employers, who receive too much. The problem, however, is that a minimum-wage law does not have the intended effect. Under reasonable assumptions, what actually happens is this: since the law sets the wage but leaves the employer free to hire however many workers he chooses, the employer responds to rising labor costs by reducing the number of employees hired, either firing some existing employees or just not hiring people he otherwise would have. Hence, the law benefits some employees—those who still have jobs and now receive higher wages—but harms other employees—those who lose their jobs or never get jobs they otherwise would have. Furthermore, the employees fired or never hired tend to be the least productive employees, i.e., the least skilled individuals who will have the most difficulty finding other jobs and so can least afford to be harmed in this way. The employer is harmed too, incidentally, though generally not very much. Again under reasonable assumptions, it can be shown that the harm to the harmed employees plus the harm to the employer exceeds the benefit to the benefited employees: that is, on a net basis, the minimum-wage law has negative consequences. For the most part, a law intended to benefit employees against employers actually transfers wealth from less skilled (and presumably poorer) employees to more skilled (and presumably richer) employees, also generating some waste in the process.
Government interventions in the market not aimed at providing public goods or rectifying problems created by significant externalities generally follow a similar pattern. Although intended to benefit members of one group at the expense of members of another, they in effect usually divide the class of intended beneficiaries into two, benefiting some and harming others. Consider a law limiting the interest rate banks may charge on credit cards. The intention is to help consumers who borrow using such cards at the expense of the banks who issue them. The effect, however, is otherwise. For, the interest rate on a loan reflects, among other things, the risk the lender bears that the borrower will not repay, and so the riskier the borrower, the higher the interest rate the lender charges. If we limit the rates banks may charge, banks will stop lending to the least-creditworthy and so riskiest borrowers. In other words, we will divide the borrowers into two groups: borrowers with good credit, who will benefit by getting loans at lower interest rates, and borrowers with bad credit, who will be harmed by being denied loans they wanted and banks were willing to make to them, albeit at a higher rate than the law now allows. The banks are harmed a bit too, but the primary effect is a wealth transfer from a less-advantaged subgroup of the intended beneficiaries to a more-advantaged subgroup of the intended beneficiaries, with some waste thrown in to boot. Such examples can be multiplied almost without limit.
In all these examples, well-meaning government interventions in the market produce effects quite different from those intended. The reason in each case is that the market—meaning individual human beings involved in the market—responds to the intervention. In a society with large numbers of individuals, most of whom are reasonably well-informed people generally capable of protecting what they perceive to be their own interests, such responses are inevitable unless government tyrannizes over people to radically restrict their choices. Ours is a society of, by and large, people with such characteristics and who are not inclined to suffer tyranny. Hence, in our society, interventions in markets not aimed at providing public goods or counteracting significant externalities tend to be counterproductive. That’s what I meant when I said above that, for people like us in a society like ours, capitalism is the most prudent choice. For different kinds of people in different kinds of societies, other choices may be better, but we’re here talking about us, not other people in other times and places.
And, of course, it is impossible to argue with capitalism’s results. The capitalist economies of the last two or three centuries have lifted up from abject poverty hundreds of millions of human beings and allowed them to enjoy a superabundance of goods and services that would have flabbergasted their ancestors. Under capitalism, vast numbers of ordinary people live much longer, eat much better, receive life-saving and life-prolonging medical treatments, enjoy much more leisure, work shorter hours in safer and in more pleasant conditions, live in larger and more luxurious homes, have vastly expanded access to education and information, travel more widely and more frequently, and generally enjoy benefits that were either entirely unimaginable a century ago or, at best, were reserved to the wealthiest upper-crust of society. Despite myths to the contrary, capitalism has produced the greatest material leveling of society in the history of the human race, radically reducing inequality of wealth and income as measured in the only way that really counts: the actual goods and services people enjoy.
But where is justice in all this? Even if the immense material benefits of capitalism are not moral justification enough (and if you think such benefits are morally irrelevant, try telling that to a mother whose infant will die without the medical advances capitalism makes possible), the moral basis for capitalism is not hard to find. Indeed, capitalism is based on the moral principle that everyone is in justice entitled to the value he creates, whether by his labor or by use of his property. In a competitive market—roughly, a market with many buyers and sellers who are well-informed about market alternatives and free to contract with whom they want on whatever terms are mutually acceptable—the return on any activity, including human labor, will exactly equal this value.
Does this mean that when, under capitalism, some people end up very poor, we should do nothing about it? Of course not. Everyone deserves enough goods and services to lead a decent life, whether he can provide such goods and services for himself or not. In a capitalist system, however, there is something like a division of labor on this point. The legal arrangements that define capitalism (strong property rights, freedom of contract, and minimal government intervention in the market) are designed for the large majority of people who can indeed provide for themselves by their own efforts. Other arrangements are needed for the exceptional people who, because of old age, sickness or other debilitating cause, cannot care for themselves. This is the realm for the virtue (and sometimes moral duty) of generosity by which those who have more give to those who have less. Obviously, there is a large role for private action here, but even the committed capitalist can think that, in appropriate cases, the state itself may take up this role. The capitalist will think that the proper way for the state to do this is through a system of transfer payments: i.e., making cash payments to worthy individuals funded by general, even progressive, taxation. The reason is that such payments really do move money from richer people to poorer people (albeit with positive transaction costs) and thus differ from most market interventions, which, as explained above, generally do more harm than good.
There’s a deeper lesson here too, which is that no solution to a complex human problem is perfect. Rather, all solutions have both costs and benefits. Looking for a perfect—in the sense of costless—solution is a fool’s errand; wise men look for the best solution realistically available, the solution that produces the greatest benefit net of costs. Once again, an analogy with politics is helpful. Winston Churchill famously said that democracy is the worst form of government except for all the others. Democracy has obvious costs, but these costs are no argument against democracy because the benefits of democracy manifestly outweigh them. In the economic sphere, the same is true of capitalism. If the problem is how to organize the economy to ensure that the largest possible number of persons get the highest possible standard of living without injustice, then, at least for people like us in a society like ours, capitalism is the best solution. It is not a perfect solution, but it is better than any of the known alternatives.
Easter and Economics
John C. Médaille
During the Easter liturgy, we are asked to renew our baptismal vows with a ceremony that begins with the question, “Do you reject sin so as to live in the freedom of God’s children?” I believe that contained within this question is a very specific notion of freedom, namely, that freedom is a movement away from certain kinds of actions and into a certain kind of life. It is obvious that such a question is crucial to our spiritual lives, but I would like to suggest that it is crucial—or should be—to the way we think about politics and economics. For at the very core of all economic disputes stands a question about the meaning and place of freedom. More of this question in a moment, but for the moment, let us turn our attention to a very crucial year in economic history, 1891, and the publication of two very remarkable works, The Principles of Economics by A. E. Marshall, and the encyclical Rerum Novarum, by Pope Leo XIII, two works that crystallize the whole debate.
To take Marshall’s work first, the most remarkable thing about it was the title. For up until that moment, the term “economics” was rarely used. The science that now goes by that name was called “political economy.” And Marshall begins his text with the words, “Political economy, or economics, is . . . ” After Marshall’s text, the term “political economy” drops from usage. This is significant. From the time of Aristotle until the late 19th century, economics was considered a colony of ethics, and no philosopher or theologian worth his stipend was without his political and economic commentary. But the political economists of the 19th century felt embarrassed by their connection with the political and therefore the cultural and social orders, and wanted to jump the great divide into “real” science. In the words of one wit, they suffered from “physics envy.” So they very consciously divided their science into two disciplines, economics and politics; the former would deal with the facts and the latter would deal with—well, who gave a damn what it dealt with? It was just philosophy no matter how you looked at it. Only the “facts” actually exist; the values are consigned to the world of wishes.
The older political economy viewed economics as something inscribed within a particular political and social order, that is, within a network of laws, social relations and expectations, and culturally specific notions of justice and property. They could not avoid questions of justice, and particularly questions of distributive justice, that justice which deals with the proper division of the rewards of production. Adam Smith uses the term “justice” over 100 times in The Wealth of Nations (1776), and most other authors in the following century gave similar weight to the term. But Marshall uses the term only twice, and his colleague, Stanley Jevons, another founder of the new science, uses it only once, and that to deny that it should be used at all. Henceforth, “economics” would be a “real” science, divorced from any actual social situation, and questions of justice would be left to the philosophers. Questions of distributive justice, that is, questions about the justice of the wage, were disallowed. Labor was no longer the source of all human values and its sustenance the purpose of all human production. Rather, it was just another “raw material,” like pig iron or hog fat, to be purchased at the lowest possible price. The question of justice was reduced to the question of “freedom”: so long as there was no coercion in the labor contract, the price was to be considered “just.” In the long run, so it was believed, all economic actors, acting in their own “self-interest,” would produce the best possible outcomes.
The new economists believed that they had solved all the problems of economic order, which could now be reduced to a “scientific” calculus. But within six months, Leo XIII published Rerum Novarum, which called for a “just wage” and a wider distribution of property. That is to say, the Pope insisted on justice as a part of economic order, and refused to divide the world into separate realms of ethics and economics. Moreover, he insisted that the just wage gives us a specific standard of judgment for the justice of any economic system. It is important to note here that the just wage is not an abstract number, since that will vary according to the circumstances, but a standard of judgment. Wages are just if they are sufficient to support a thrifty worker and his family in the level of dignity appropriate to his society, and to do so without putting his wife and children out to work in the wage economy. Further, the wage was to be high enough so that the worker could acquire property of his own to provide his family with some security for times of illness, unemployment, old age, etc.
The Pope’s words were considered scandalous from the standpoint of the new “science.” What right did this Roman priest have to interfere with matters beyond his competence? The Pope is clearly a moral authority at best, and matters of science should be left to the scientists. And in this critique, the economists have a point. Since the Pope’s words are directed to economic order, they have to be judged on economic grounds. If his words do not lead to a more stable economic order, then they should carry no weight and be of no effect. So the practical question becomes, “Who is better at describing the real economy, the Pope or the economists?”
When we examine this question, a curious pattern arises. 90 percent of the working economists missed the coming of the current disaster, and those few who did sound a warning were ridiculed and marginalized as “Dr. Dooms.” But this should not surprise us, since 90 percent missed the coming of the last disaster, and the one before that, and the one before that, etc. Indeed, the track record of the “scientists” is uniformly dismal; they nearly always get it wrong. In point of fact, economics in its current state lacks any real descriptive power for any actual economy. And you cannot predict the course of a system which you cannot accurately describe. Its abstractions are so general that even when they are correct, they fail to describe any actual economy.
But it is not sufficient to show the failures of the current understanding of economics; it is necessary to show that the Pope’s views would lead to better analysis, an analysis that would be rooted in examining the distribution of wages. And specifically, it is distributive justice that is at issue, the justice which proclaims that each person should get from production neither more nor less than what he contributes to production; that is, there should be no wealth without work, nor any work without wealth. In our system, this is viewed as a contest between capital and labor, and for decades, capital has been winning the contest. Since 1973, the median wage for the white male worker has been flat, and this despite the fact that productivity in all classes of labor has exploded. (Women and minorities have made some real gains, but from a much lower base.) What this means is that the worker is required to clear larger markets on the same wage.
Clearly, that is an impossibility. In the absence of distributive justice, three other means were used to balance the markets. The first was to put more family members to work to keep the family income stable. But the family income has stagnated since 1998. The second method is to increase government spending financed by debt. We all denounce this method, but we rarely ask the reason. For no matter how “conservative” the regime, the amount of debt increased, tripling under Reagan and doubling under Bush. In the absence of distributive justice, this is simply a requirement; if the wage system cannot achieve equilibrium, that rough balance between supply and demand, then the government has no choice but to re-balance the economy by re-distributive means. No regime, regardless of its ideology, is willing to sit back and watch the economy collapse, and will do what it takes to keep it together. And if that means inflating markets, that’s what they will do.
Given the limits of the first two methods, a third method became necessary: the group with an excess of funds would simply lend it to the group with a shortage of funds, to fund consumption rather than production, and to do so at usurious rates. Of all the methods, this was the most short-sighted, since a loaned dollar, used to increase consumption today, can only decrease consumption in a future period by that same dollar, plus interest. This requires another and larger round of lending, until the whole system collapses of its own weight.
So our situation today is that the family is tapped out, the government has reached its limits, and credit has dried up. Private debt is piled on public debt is piled on structural debt is piled on current accounts deficits; debt upon debt upon debt upon debt. There seems to be no solutions to our problems within the current institutional arrangements. Double the taxes, or eliminate them entirely; pay the debt or double it; impose tariffs or wipe them all out: each solution leads to its own disaster, either alone or in combination.
Clearly, the standard model of economics has failed us. Not only has it failed to bring a stable economic order, but it has destabilized the family and the community as well, and grown the government past any reasonable bounds. Clearly, a different model is needed. Note that I said “different” rather than “new.” It is not a question of inventing new systems, but of examining existing systems to see what works and what doesn’t. Economics—or rather political economy—is preeminently a practical science. We need to find out what works, and adapt it to our own circumstances. Inventing models is easy; getting them to work is hard. And if a system has no existing implementations, we are permitted to assume that it can’t be implemented. So, can we find a system on the ground and working that will address our questions of political economy?
I believe we can, and that system is distributism. This system seeks to restore distributive justice to its proper place in the economic order; its main tenet is that without a proper distribution of the rewards of production, markets cannot be cleared, family life will be disturbed, and the markets will become more dependent on government and consumer finance to clear.
Now the major difference between distributism and conventional economics has to do with property and a just wage; that is, with the things the Catholic Church teaches as essential to economic order. Standard economics justifies the wage on the basis of “free contract,” that is, if there is no government coercion which forces someone to accept a given wage, then the wage must be considered “just.” Further, through free bargaining, both sides, capital and labor, will get what they actually produce and productivity will be properly rewarded.
However, Adam Smith pointed out the fallacy of this logic. The worker “bargains” under the compulsion of poverty; he simply cannot do without the work for any appreciable length of time. The owners of capital, on the other hand, can go long periods without working, and hence they are under less compulsion. In other words, Smith pointed out that labor contracts arbitrate power, not productivity. The CEO gets 500 times what the line worker gets 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.
If Smith is right, then Leo is right as well. The wage cannot be left to “free” bargaining if distributive justice is to be satisfied because the bargaining is rarely free. All that being said, we would certainly like the first account to be true. We would like to think that free men freely negotiating will quickly reach a point of justice. But as long as negotiations are about power, and negotiations will always be about power, this cannot happen; the negotiation cannot properly reward productivity, but only power. The solution, then, can only involve equalizing the power between the parties, since only equal parties can fairly negotiate. A few methods suggest themselves. One, the government could intervene massively on the side of the worker, or the workforce could become substantially unionized. However, both of these solutions involve massive dangers; these could be cures worse than the disease.
In truth, there is one institution, and one institution alone that can make men free enough to freely negotiate, and that is the institution of widely dispersed property. Power follows property, as Daniel Webster noted, and this is but a truism. When property is concentrated into a few hands, then both economic and political power is in those same hands; and when property is dispersed then power is dispersed and the tyrant checked. When property is concentrated, it finds all too easily that it can command the public purse to its private advantage, and institutions that are in fact too big to succeed are judged to be too important to fail, and hence they never have to bear the burden of their own failures; their profits are privatized and their losses are socialized.
Are there models we may follow in this? Indeed there are: quite a few, on the ground and working in large scale production and over long periods of time. One such example is the Mondragón Cooperative Corporation of Spain, nearly sixty years old, where 80,000 worker-owners do about $25 billion a year in sales from products from the most simple to the most technologically advanced. But Mondragón is not only a production company; they also run social safety net schemes, a school system, training and language institutes, R&D centers, and even their own university, all without government assistance. It is, ironically, the nearest thing in captivity to a libertarian system, certainly closer than anything the libertarians have been able to accomplish. That is to say, Mondragón fulfills not only the requirements of property and the just wage, but also the requirements of solidarity (since the workers take care of each other and are responsible for running their own businesses) and subsidiarity (since they handle their problems at the lowest level rather than passing them to the state.)
This is but one example; I could give dozens of others: the cooperative economy of Emilia-Romagna, the success of Taiwan’s Land to the Tiller program, the thousands of Employee Stock Ownership Plans (ESOPs), mutual banks and insurance companies, and so forth. All of these involve distributed property and all are on the ground and working. On this question, pure romanticism belongs to the capitalists and communists; a pure capitalism has never been tried and never will be, while a pure communism has been tried with consistently tragic results. Distributism, on the other hand, has concrete implementations, and you can walk around them, kick the tires, see how they work, and decide whether they will work for you, for your family, your children, and your community. And this is the only practical way to judge practical systems; a system with no actual implementations is to be treated with the skepticism it deserves. Distributism goes from success to success, while capitalism goes from bailout to bailout.
Space does not permit me to deal with the question of how this may be implemented within the traditions of American society, law, and constitutional government. Suffice it to say that which has been implemented can be implemented. Further, it is becoming increasingly clear that the current system is not sustainable and will have to be rebuilt from the bottom up. For those concerned with practical systems, the world as it is is no longer practical, and we will need another model to reconstruct it, for it would be the height of insanity to try to rebuild the current system and expect, miraculously, a different result.
For now, I return to the question of our “Easter freedom.” For in the standard theory of economics, only freedom is considered in the belief that justice will take care of itself. But the Church responds by saying that freedom itself is dependent upon justice, and to ignore the latter is to destroy the former. Freedom cannot be reduced to a mere competition of unrestrained desires. This describes not freedom, but license, and licentiousness always doubles back on itself to destroy freedom. No, true freedom starts with justice. And our Easter freedom means moving away from not just personal injustice, but also from those “structures of sin” (as the Blessed John Paul called them) into the freedom of Christ. This is not merely an otherworldly call; every religion, but particularly an incarnational religion, has meaning in terms of our concrete social, political, and economic systems. And as Christians, it is our task to make the gospel concrete within our social institutions. Indeed, that is the whole reason for renewing our baptismal vows.
Bernardo Aparicio García is president of Dappled Things. He holds a BA in economics and international relations from the University of Pennsylvania, and moonlights as an IB and AP economics teacher at the high school level.
Robert T. Miller is a professor of law at the Villanova University School of Law.
John C. Médaille is an adjunct instructor of Theology at the University of Dallas, and a businessman in Irving, Texas. He has authored the book The Vocation of Business, edited Economic Liberty: A Profound Romanian Renaissance and just completed Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More.