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Distributism Basics: Distributism vs. Capitalism

“Distributism is just like capitalism, except that we differ on the nature of man, the purpose of economic activity, usury, the maximization of token wealth, the role and legitimate exercise of the state, empirical economics, the meaning of subsidiarity, subordination of economics to the higher sciences, our ends, our means, what money is, what wealth is, what a free market is, production and consumption, regulation, free trade, the moral and divine law in the social and economic order, and, yes, what liberty means.”  — Richard Aleman

In order to discuss the differences between distributism and capitalism, we must first discuss what capitalism is. I know that many people assume they already know what capitalism is, but I contend that they are only partly correct in their knowledge. I think that what they believe to be capitalism is part of it, but capitalism also includes specific things they might not consider as part of it, and with which they may actually disagree.

For many people, the idea of capitalism does not go much farther than the right to private property and free market competition. It is when you get into more specific details of these and other aspects of capitalism that the differences between what people think it is (or should be) and what it actually is come to light. Are there reasonable limits to the use of private property? Is a market truly free if monopolies exist? Should local government be able to prevent a store like WalMart from opening in the community in order to preserve the existing local businesses? It is in the details where you can find great differences of opinion among self-professed capitalists.

Have we really considered what truly defines capitalism? What sets it apart from the economic systems that preceded it? What sets it apart from socialism? What sets it apart from distributism? Capitalism is that economic system in which the private ownership of productive capital is separated from the work on that capital, and where the laws not only facilitate, but give advantage to, that separation. Many people will disagree with the last part of this definition, but the reality is that capitalism has never existed without the use of laws to give advantage to certain business interests. Whether we are discussing protectionist tariffs, or the seizure of the commons to give them to already wealthy merchant lords, or the forced disbanding of the guilds, the manipulation and use of the power of government has always been an integral part of capitalism.

We need to realize that there is no such thing as an economic society without political involvement in economics. Utopian socialism had to morph into scientific socialism. Even those capitalists who advocate a “minimalist” view of the role of government in economics promote whatever involvement they consider to be the most advantageous to businesses, whether it is the establishment of government protections in the form of patents or copyrights, or laws preventing fraud, or other government-enforced protections. While distributism promotes subsidiarity, that promotion really just keeps government involvement to as local a level as practical, based on our belief that this will best protect economic freedom by allowing local citizens to have a real and effective voice.

Just as we say that a society is socialist when a determining amount of its productive capital is legally barred from being privately owned, a society is capitalist when a determining amount of its productive capital is privately owned by people who do not do the work due to laws enabling and encouraging the separation of ownership and work. The “determining amount” is not a hard and fast rule. It is that amount that would generally be accepted as establishing the tone or mode of the society. The separation of private ownership from work is at the root of various aspects of capitalism: usury, free trade, the combative relationship between labor and owners, the stock market, the consolidation of wealth resulting in monopolies, and the consequent anti-trust issues.

In his 1912 book, The Servile State, Hilaire Belloc wrote that capitalism was moving toward two inevitable ends that he termed the Servile State and the Distributive (or Proprietary) State. While scientific socialism is very close to what he described as a Servile State, Belloc didn’t think it likely that societies would choose the socialist route because of the extreme disruption to economic life it entailed. While he may have been wrong about some societies being willing to try the socialist route, he was clearly correct about the economic disruption.

What Belloc considered more likely than the move toward socialism was modifications to capitalism that would preserve the essence of the prevailing capitalist structurethe majority of productive capital controlled by a minority of wealthy ownersbut would implement government-imposed protections against the economic injustices the workers were facing at the time. These protections for the workers were not without their own demands, however; in order for the workers to receive them they would be legally compelled to work for the owners. This is the essence of what Belloc called the Servile State.

This legal requirement would not necessarily involve the government dictating where individual people would work. The workers may remain free to move from employer to employer in a Servile State, but the legal protections to provide the needs of the people, both while they worked and in times when they didn’t, would be based on the obligation of the masses to work for the few owners of large concentrations of productive property. Even if small proprietors remained, the laws would favor the large proprietors, protecting the concentration of ownership. This would effectively compel large numbers of workers to work for the large proprietors. If this were done correctly, Belloc maintained, capitalism would become stable. The majority of the large proprietors would welcome the restrictions and obligations imposed on them because it would guarantee that they would maintain their wealth and status. The majority of the workers would welcome the obligation to work for the large proprietors because it came with promises that the deplorable conditions in which they lived would be greatly improved. Belloc stated that because capitalism had already concentrated so much wealth into the hands of a few large proprietors, society would find it much easier, much less disruptive to move toward a Servile State than either the Distributive State he advocated or the socialist collective state he did not.

In the same year that Belloc published The Servile State, John Maynard Keynes proposed a radical modification of the prevailing capitalist system which had resulted in the masses of workers living in poverty and wretched conditions. It is an unfortunate truth of capitalism that, because it tends to transfer wealth from the masses to the few proprietors, the workerswho are also the overwhelming majority of the customerscease having enough money to buy. As the workers struggled just to have a place in which to live and food to eat, they necessarily stopped buying other things. To solve this situation, Keynes proposed a system in which the government would tax the large proprietors to fund programs in order to assist the workers. The idea was that transferring enough wealth from the large proprietors back to the workers would relieve them of the worries of having to choose between the basic necessities of life and purchasing other products necessary to keep capitalism functioning. The result of these changes was that economic society became more stable; there were still disruptions, but they became less frequent. Belloc was at least partly correct in his predictions.

It needs to be understood that the Keynesian system is not a recipe for socialism. Both utopian and scientific socialism removed at least the vast majority of private ownership. Keynes’s system not only maintains private ownership, but keeps it in the hands of the few large proprietors. In fact, the Keynesian plan is completely dependent on the continued existence of a very wealthy class of private owners. This is important to understand because some advocates of the Austrian School say that more government involvement in economics actually constitutes socialism. In reality, the Keynesian plan was not one for the establishment of a socialist egalitarian society. The rhetoric behind all of these plans is nothing more than an extension of the Keynsian idea of transferring enough wealth from the haves to the have-nots because they believe that is what will keep the economy working.

The disagreement between the Austrians and the Keynesians ultimately boils down to the extent to which government should be involved in economic matters. The Austrians say they want government out of economics, but they really mean they only want government involved in ways they believe will protect and promote business interests. The Keynesians want government and business to work hand in hand, even if they are sometimes at-odds over particular points, to try and maintain the maximization of corporate profit while not impoverishing the workers. The Austrians would argue that Keynesian economics is not capitalism because the government interferes in the free market. There is an element of truth to the argument. The Keynesian system is truly a movement away from capitalism toward the Servile State. The question is whether the move has gone far enough at this point to say that we have truly moved from one to the other. The Servile State is neither capitalism nor socialism, but will ultimately result in a totalitarian plutocratic state just like socialism ultimately results in a totalitarian collectivist state. Capitalism on its own results in a plutocratic state that may not be totalitarian, but will be just as miserable for the majority of those who live in it.

Just as I don’t believe that Adam Smith envisioned the atrocities capitalism enabled, I don’t think that Keynes necessarily envisioned everything that his system, under which we now live, has become. But Belloc did. What Keynes really accomplished, even if he didn’t intend to do so, was a workable plan for the gradual and peaceful implementation of Belloc’s Servile State. Today’s advocates of the Austrian School are loudly calling for a return to the earlier, “truer,” capitalism. We must ask, however, exactly how different is the current Austrian view from the policies of the 19th century? Even if we disagree with what unions have become as political entities, have we forgotten why they were formed? Have we forgotten why the child labor laws had to be passed over the objections of big business?

Have we forgotten how difficult it was to actually get those laws passed due to the power that big business had over government? I don’t claim that we would return immediately to the injustices of those days, but what does Austrian School propose that would prevent those types of things from eventually happening again? (And is would those proposals even really consistent with what they call true capitalism?)

What, then, is the difference between capitalism and distributism? Capitalism is that economic system in which the private ownership of productive capital is separated from the work on that capital. Distributism is that economic system in which the private ownership of productive capital is joined to the work on that capital. When the determining amount of privately owned productive capital is worked on by the owners of that capital, the society is distributist.

This is where comparing distributism and capitalism can get confusing for some people. Capitalism does not reject the small proprietor who works on his own property. Capitalism does not reject worker-owned cooperatives. Therefore, the forms of businesses and ownership promoted by distributists are perfectly acceptable to capitalists. The difference is the acceptance by capitalists of the concentration of ownership into the hands of a few extremely wealthy owners. The difference is the foundational philosophical views that result in capitalists accepting, and distributist rejecting, things like usury, anti-competitive spending, monopoly, transactions where only one side is protected from risk, and the view that economics is a “natural” science like chemistry or physics to which things like ethics and justice don’t necessarily apply.

It needs to be admitted that most people who consider themselves capitalists would argue that everyone should act in an ethical way, in business as well as always. The point is that ethics has nothing to do with what capitalists say is the science of economics. The capitalist’s idea of the science of economics would allow him to say, “It’s not personal, it’s business.” The distributist’s view of the science of economics would not allow him to say that. I’ll write more about that in the next article of this series.

It is my opinion that the average person who considers himself a capitalistthe small proprietor, the typical employeeunknowingly agrees more with the economic views of distributism than with the true nature of capitalism. They would rightly argue that capitalism can be ethical and just. What they don’t realize is that there is nothing inherent in capitalism, nothing built into it at a philosophical level, to ensure or even promote ethical business practices. There are laws against fraud and false advertising, but trying to otherwise ensure ethics in business is a separate issue that may (or may not) be applied by individual businessmen or corporations. In fact, ethics is only considered to be “good business sense,” rather than part of the science of economics itself.

Another difference between capitalism and distributism is the ability for a community to influence and protect its local economy. In general, distributism accepts the idea that local businesses should be self-governing within guild structures. The structures need to be set up so that businesses are answerable to the local community they serve. Local communities can require local residency for running a business within its jurisdiction, but not be able to prevent tradesmen from bringing in goods produced in other areas. Capitalism rejects such things as interfering with what they call free market competition.

The capitalists idea of economics allows him to say that greed is goodnot just bettering one’s own position, but actively trying to get all that he can for himself (without fraud). Distributism has nothing against someone trying to better his own position, but still considers greed to be a vice. Distributism does not pretend to propose a system in which there will be no wealthy and no poor. That idea is a Utopian absurdity. However, if the private ownership of productive property were widespread, the disparity between the wealthy and middle classes, and between the middle and poor classes, would be smaller than it is.

All of my argument here is based on the idea that a great multitude of small, privately owned businesses is better for society and results in greater economic independence and freedom for the average citizen than does having large multi-national corporations employing tens of thousands of non-owner workers. The result of distributism will be: more providers of all goods and services, which will increase employment options and better working conditions for workers; greater variety and more choice for customers; more acceptance by business of social responsibility to the community; and more stability in the local economy, because more economic activity will circulate within a community rather than sending money out to distant corporate headquarters.

I agree with Belloc that moving to a distributist society involves a great change for that society. The social and economic changes would need to be worked out and implemented carefully because they are so radically different than what we currently have, so different from what we have been taught is the only just and workable system in the world. Beyond that, however, is the fact that distributism is based on a different philosophical view of economics than is capitalism. For the distributist, economics is about families being able to provide for their needs and wants. This is the foundational principle that underlies everything else about economics, not the constant increase of the GDP, the price of shares on the stock exchanges, or being able to report record profits. The foundation of a healthy and stable national economy is for the various local economies to be healthy and stable. The collective resilience of local economies is a more accurate barometer of national economic health than the stock market.

 

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  • Gus

    You acknowledge say that “moving to a distributist society involves a great change for that society. The social and economic changes would need to be worked out and implemented carefully because they are so radically different than what we currently have . . .”

    But you also acknowledge that capitalists can “rightly argue that capitalism can be ethical and just.” So you do agree that in theory at least, capitalism can be ethical and just, and you also acknowledge that within capitalism there is a place for distributist ideas.

    Yet in your essay you describe the problems of capitalism as it has been and is being practiced, and even try to say that, “The capitalists idea of economics allows him to say that greed is good—not just bettering one’s own position, but actively trying to get all that he can for himself (without fraud).” I don’t think Gordon Gekko typifies Christian or Catholic thought.

    The “problem” is that capitalism is being practiced in a society where many people are not ethical or just. But instead of trying to fix the ‘root cause’ of this economic system (lack of virtue in society), your “fix” is a new, theoretical type of economics called Distributism. How does Distributism ‘fix’ the unethical and unjust human beings amongst us? If Distributism was put into practice, it would be practiced by the same unethical and unjust people who are currently the unjust, unethical practitioners of capitalism.

    How about we just fix society? If everyone in the world was a good Christian or Catholic, the economic problems may just fix themselves.

    • JGradGus,

      You bring up some excellent points. First of all, what I said about capitalism is that there is nothing inherent in its structure to help reinforce ethical behavior in business. Distributism has this by localizing businesses as much as practical. The fact is that unethical business practices – particularly employment and working conditions – are more readily addressed if the customer has an easy way to be aware of them. I address this more thoroughly in other articles on my own blog. They are titled “Quis costodiet ipsos custodes?” and “Capitalist Monopolies vs. Distributist Guilds.” There is absolutely nothing in the economic theory of capitalism to prevent a capitalist from delclaring greed to be good. (And that quote is referring to Walter E. Williams, and is linked to an article of his, not Gordon Gekko.)

      Secondly, my assertion as a distributist has been precisely that the ultimate problem with capitalism is philosophical, and that we cannot simply overlay distributism on capitalism, or even replace capitalism with distributism, without simultaneously addressing the philosophical errors that led to capitalism in the first place. In other words, distributism cannot fix the ethical and moral problems of our economic environment. Fixing the ethical and moral problems will first result in a better practice of capitalism and ultimately result in distributism. Believe me, I have no illusions that this will be easy or that it will create some sort of Utopia. In fact, I also wrote an article on that specific topic titled, “Utopia.” It is possible to practice capitalism in an ethical way, but there is nothing in capitalism to even encourage it.

      Finally, distributism is not a new, theoretical type of economics. It is more of a return to a tried and tested type of economics that worked without economic upheavals for hundreds of years – although any modern incarnation of it would not include certain social structures that were particular to its time. The confusion is easy to understand though. Distributism has only been known by that name for around 100 years. This is because, prior to the rise of capitalism, economics was not considered its own category of study. There never used to be discussions of different theories of economics. Economics was simply a sub-field of ethics. This is a topic that will be covered in the next article of this series.

      • sythe100

        Assuming that society moved to a disributist model, how would large projects be accomplished? For example, private space companies are arising that are producing spaceships and will probably be the one’s to take humanity to space. If we were a distributist society, how would capital of that scale be accumulated in a purely local economy?

        • sythe100,

          Distributism does not necessitate a “purely” local economy. Even the early distributists acknowledged that it is simply not practical that some industries be duplicated in every local community. The examples I typically use are automobile and aeroplane manufacturers. It is simply not reasonable to assert that these can only be local businesses. However, that does not mean that we cannot establish laws to prohibit predatory business practices (like swallowing up competitors) in regard to those larger businesses. It also does not mean that the ownership models we currently use are necessary for those industries to exist or be innovative and successful.

          In summary, distributism has a definite preference for the local economy, but only as far as is practical. Tacoma, Washington has a local coffee roaster. This does not mean that Fife (a neighboring community) could not also have its own. Boeing is located in Washington as well, but there is no reason to assert that it is economically better that there are only two aeroplane manufacturers in the U.S. rather than more. There is no reason to assert that it is economically better to have three automobile manufacturers in the U.S. when there used to be many many more – and many of those that no longer exist were cut out by predatory behavior rather than their own economic failure.

        • sythe100,

          As for other large projects, they were even able to work this out in the localized economies of the Middle Ages. The level of journeyman allowed skilled craftsmen to go to wherever work was needed. Particularly large projects of the time – like the construction of a large building – would also sometimes bring in masters from surrounding communities. Distributism is flexible enough to handle these situations as exceptions while still having protections for local businesses for every day economic activity.

      • Gus

        If, as you say, “Fixing the ethical and moral problems
        [associated with or ‘inherent in’ capitalism] will first result in a better practice of capitalism and ultimately result in distributism,” then ‘the fix’ should be the goal (since it will ultimately solve more problems than just economic
        ones) as opposed to calling for a new (or a return to) Distributism.

        I have argued before, with Mr. Stork and others here at
        Ethika Politika, that whether we talk about a free market economy, a capitalist economy, the guild system, libertarianism, co-ops, or a distributist economy, that virtue and ethics are really the keys to economic fairness and the
        Catholic concept of ‘social justice.’ It seems to me that if you are correct that distributism will ultimately be the result of better ethics and higher morals, then distributists should really focus on calling for better business ethics, higher moral standards, and fairer, more efficient business models, as opposed to muddying the waters by calling for a Distributist economy (which sounds Socialist/Marxist even though it is not).

        I have agreed, in other posts here that co-ops are a good
        idea, but, as you also point out, corporations also have their place, as do single proprietor businesses and partnerships. But I have also argued that the nature of man can be deleterious to any business or organizational structure. Having spent 35 years in the business world, I have seen this firsthand. All it takes is one key individual in a leadership role with ‘a new vision’ to take the corporation (or a co-op) in the wrong direction. Just as a greedy CEO at
        a corporation might chose to gobble up the competition, a greedy CEO at one co-op could chose to gobble up other co-ops (he might call it ‘partner with’ or ‘merge with’ until he can push out the other CEOs and become the single CEO of the new, bigger co-op). Any system devised by man can be scammed. The proof is all around us and throughout history.

        • Which is why having an economic model where communities have the option to require local residence to own and run a business in its jurisdiction would be better than what we currently have. Even if a greedy co-op managed to run off the rails and buy up its competition in the local community, it would not be able to expand itself into the next community and the next and the next as it could now.

          My argument has been that no economic system can eliminate the failings of the human factor, but one can be structured to mitigate the impact of those failings. Distributism at least attempts to do this. I simply cannot agree with the argument (which I don’t say you are making) that, because we cannot change human nature, there’s no point in even trying to do anything about injustice.

    • Thomas Storck

      ” But instead of trying to fix the ‘root cause’ of this economic system
      (lack of virtue in society), your “fix” is a new, theoretical type of
      economics called Distributism. How does Distributism ‘fix’ the
      unethical and unjust human beings amongst us?”

      There is no contradiction between working to improve institutions while recognizing at the same time that human sin is at the root of all our ills. But some systems work better than others, some assume and even need sin, others tend to minimize bad behavior. While I agree that the mere capitalist separation of ownership and work can be just (cf. Quadragesimo Anno #100-101), the system itself fosters greed. Distributism, while naturally not able to eliminate either the effects of original sin nor actual sins, does tend to minimize their prevalence in society by not fostering the desire for more and more riches nor the idea that success in business means eliminating one’s competition.

  • JP

    “…and the view that economics is a “natural” science like chemistry or physics to which things like ethics and justice don’t necessarily apply.” I’m pretty sure physics and chemistry have laws that are not influenced by morality, but the use of chemistry and physics certainly do have ethical implications. Understanding the physical laws of how atoms split is not the same as dropping an atomic bomb on a city. Similarly, understanding the laws of how economies work is not the same as “actively trying to get all that he can for himself”

    It seems reasonable/evident to me that there are economic laws that are not influenced by morality, but that a particular economic activity could be morally right or wrong.

    Does distributism posit any of these laws to explain economics? Or does it just reject that there are such laws at all?

    • JP,
      I try to address this in the next article of the series.

      • JP

        Great, thanks. I’m looking forward to it.

  • Edgardo Tenreiro

    A few thoughts that should cause pause to distributists:

    1) Capitalism is NOT the economic system where work and capital are separated. Capitalism is the economic system where capital is owned privately and where scarce resources are produced and distributed according to the price system which comes about by the uncoerced exchange between individuals. That most individuals would prefer to receive from the capitalist a risk free advance (in the form of wages) of the uncertain future revenue stream of the enterprise is a free choice that both the owner of capital and the wage earner ought to be able to make without interference or coercion from a distributist state. Distributism, sadly, completely misunderstands, does not appreciate and denigrates the beneficial social function of the capitalist.

    2) Capitalism does NOT require collusion between the capitalist class and the state. That over time this has happened to societies that have adopted democratic liberalism cannot be blamed on capitalism. After all, unions, the military, minorities, social groups, seniors, welfare recipients, etc., also collude with the state to protect and advance their interests. This collusion is the result of democracy and liberalism, not of capitalism.

    3) Usury or the charging of interest is NOT the result of the purported separation between capital and work–and neither are free trade and the stock market. Interests, for example, is simply the result of difference in valuation that individuals make when comparing goods in the present vs goods in the future. This logically results in the same good being valued more in the present and discounted in the future. None of these are immoral or defective traits of capitalism. They are natural, necessarily logical and beneficial elements of social cooperation in a free society.

    4) The science of economics does NOT necessarily entail the acceptance of positivism, the view that economic science is like the natural sciences. That positivism has invaded the great majority of schools of economics and that these schools have divorced economics from ethics cannot be blamed on capitalism. They must be squarely blamed on economists and philosophers.

    5) Finally, capitalism can be philosophically grounded on ethics and therefore this grounding can and does promote ethical practices. That human action is teleological or goal oriented, that it is illegitimate to initiate force against others, that it is proper for individuals to own property privately, all these ethical principles are logically necessary and essential to capitalism. Without them we do not have capitalism but something else.

    • What you describe as capitalism existed prior to the system known as capitalism. So what distinguishes capitalism from that previous time? Also, your definition of “uncoerced exchange” is probably different than mine.

      The early capitalists used the power of the state to remove the self-sufficiency of the populace by getting laws passed to restrict their private productivity. This ended up forcing them to go to work in the capitalist factories. I’m sorry, but capitalism has always used the power of the state. This collusion is the result of the economic liberalism we call capitalism.

      Usury certainly existed prior to capitalism. It was also universally rejected prior to capitalism. Therefore, while you are technically correct that usury is not the result of the separation of work and ownership, the acceptance and modern prevalence of usury is.

      You say that the divorce of economics and ethics cannot be blamed on capitalism but on economists and philosophers, but “capitalism” is not a living thinking thing on its own. It is the creation of those same economists and philosophers who divorced economics from ethics. In my view, you are merely reinforcing my statement.

      Capitalism as a system cannot be philosophically grounded on ethics because the creators of capitalism decreed that ethics is a separate thing not related to the science of economics. I address this more in the next article, but if capitalism and ethics are separate fields, then capitalism itself does not promote ethical practices. It is only when those individual capitalists who believe that ethics should be applied to capitalism that they – and not capitalism itself – can promote ethical practices. And, once again, capitalism is not the only system that acknowledges that it is proper for individuals to privately own property. Distributism also does.