Mises Daily Articles
Moving toward a Free Market but Never Getting There
Although John Médaille has worked in management at large corporations, he doesn't like large corporations. He also doesn't care much for the Federal Reserve, government bailouts, socialism, Keynesianism, centralization, and what passes for capitalism nowadays. But, he likewise disdains advertising, gold, landlords, high executive salaries, Austrian economics, individualism, and what he deems usury.
The author has not divided his 19 short chapters into three parts, but such a rough division can be made. The first six chapters serve as an introduction to distributism, economics, the economy, supply and demand, equilibrium, exchange, economic justice, and the supposed failures of capitalism. The next five chapters include three that amplify Polanyi on the "fictitious" commodities of money, labor, and land, followed by two more on property and labor. The last section of the book, chapters 12–19, directly relates to the book's subtitle.
The book is an admirable defense of distributism that far exceeds anything written by G.K. Chesterton or Hilaire Belloc. But a defense of distributism should not be confused with a defense of the free market. Although some of Médaille's proposals move toward a free market, they never get there.
The book begins well, with the author's assertion that economics is not a physical science like physics, astronomy, or chemistry. This is a theme he returns to throughout the book. However, the book ends poorly, with the author advocating property redistribution, price controls, fiat money, a national bank (albeit with no Fed), and managed trade. In between he mischaracterizes capitalism; misrepresents Austrian economics; blames the gold standard for instability and "chronic deflation"; and promotes public education, agricultural subsidies, government stimulus spending, government price fixing, and wage-setting courts.
And Médaille believes distributism is "a true 'free market' system"?
The essence of capitalism is the private ownership of production, as opposed to the public ownership of production under socialism. Médaille scores some good points against what we would call corporatism, state capitalism, or crony capitalism. But to Médaille, capitalism is capitalism is capitalism. Therefore,
Capitalism and the free market are incompatible.
Capitalism cannot function without government interference.
Capitalism requires socialism for its very stability.
Capitalism relies on an expanded state to balance aggregate supply and demand.
Capitalism always ends up relying on government power and money to rescue it from its own idealistic excesses.
Even laissez-faire capitalism has "been weighed in the balance of history and found wanting."
The only Austrian economist that Médaille interacts with is Friedrich Hayek. Neither Mises, nor Rothbard, nor any modern Austrian economist is mentioned in the book. Médaille correctly points out that Hayek "equivocated on the issue of government." But then he incorrectly states that "by and large" those in the Reagan administration were "followers" of Hayek. This would be news to the most prominent Austrian economist during the Reagan administration, Murray Rothbard, who wrote a blistering critique of Reaganomics and Reagan's use of libertarian rhetoric in contrast to his practice of statist policies. Medaille's remark that "Austrian theory leads to socialist practice" is one of the most ludicrous statements in the book.
Most unsatisfactory is Médaille's discussion of money — and not simply because he says on one page, "Inflation simply means that prices are rising, while deflation means that they are falling," but says on the next page, "In order to prevent rapid changes in the value of the money, that is, inflation or deflation" (pp. 76–77, emphasis added).
Médaille also revives the medieval concept of usury, but with a new twist. He distinguishes between "lending for investment" and "usury." Investment is "giving money to firms and entrepreneurs in order to expand production and increase the wealth of society." Usury is "lending money at interest to increase consumption." Usurious interest payments "merely constitute a transfer of wealth." Does this mean that no one should get a loan to purchase a car, boat, or house? Médaille doesn't say. He calls for the elimination of usury, but likewise doesn't say how this should be brought about.
There are some gems in the book, however. Médaille disdains patents and medical licensing, while instead preferring manufacturing licenses and medical guilds. He wants to abolish the Fed, scale back the military, and cut the federal budget by 50 percent. The best part of the book might be its critique of the flat tax and the FairTax.
However, although Médaille feels that "we do not need the current oppressive and intrusive tax structure that we have today" if the federal budget were to be cut in half, he would retain a form of the corporate tax; impose a tax penalty for high CEO salaries; tax externalities "to force companies to internalize all of their costs"; and institute a Georgist land tax, collected on the local level but "divided in a fixed proportion among local, state, and federal authorities." He doesn't say what would become of Social Security and Medicare taxes.
Médaille maintains that "distributism needs Georgism to maintain itself." This brings up one of the main themes in the book: "wealth without work." He uses this phrase so much that the book's subtitle would more accurately be "A Distributist Perspective on Wealth without Work."
According to Médaille, the economy is rewarding sloth if it is rewarding the creation of wealth "not based on some productive endeavor." Wealth without work "is the primary source of both economic inefficiency and economic injustice." It is landlords that get wealth without work when they collect rent, because "when ownership and use are separated, a class that has claims to wealth without work is created." The "Georgist 'tax' simply appropriates the income of the rentier or landlord, the person who lives off other people's work." This land tax "works best where ownership is well divided and property not concentrated into large estates or tracts, in other words, in a distributist state."
The largest landowner in the United States is the federal government. If Médaille is so concerned about the equitable distribution of land, then why doesn't he call for the federal government to sell or otherwise divest itself of all its land holdings? There can, of course, never be an equal distribution of property — not as long as every second there are people that die and people that are born.
The other main theme in the book is the just wage. The just wage "unites and includes" the reform paths of the Georgists, who "would reclaim the values of land that are produced by the community and redistribute them to the community that produced them"; the institutionalists, who "would ensure that the worker gets a just proportion of what he produces"; and the monetary reformers, who "would eliminate usury, that is, fortunes that are based not on producing any useful goods or services."
So, how much is a "just wage"? According to Médaille, the "just wage represents people taking out of the system in consumption no more than they put in by production." So, again I ask, how much is a "just wage"? Médaille explains his vagueness:
The reader will note that I have not stated a number for the just wage. This is because the just wage is not really a number at all. Rather, it is a standard of judgment. It is impossible to give a generalized number for the just wage because it will vary from place to place, time to time, and culture to culture. Further, even in any specific setting, there are just too many jobs, companies, and specifics to set a number on the just wage. Nor should we set a specific number.
He goes on to say that the "just wage" is fulfilled if it meets four conditions:
That working families, as a rule, appear to live in the dignity appropriate for that society.
That they can do so without putting wives and children to work.
That they have some security against periods of enforced unemployment, such as sickness, layoffs, and old age.
That these conditions are accomplished without undue reliance on welfare payments and usury.
Okay then, who decides if a wage is just? Médaille doesn't precisely say. Indeed, "it may be difficult to give precision to any of these factors." He does say it is "certainly possible to make reasonable judgments and set reasonable standards," but, again, we are never told who gets to make these judgments and set these standards. He definitely favors labor, since he believes that "labor, not capital, is the true source of all economic values."
Throughout Toward a Truly Free Market, Médaille seems to imply that it is always preferable for a man to own property rather than rent it, and to operate his own business rather than to work for someone else.
One gets the impression from reading this book that Médaille would like to see the government expropriate all the land in the United States, raze everything on it, and build a coast-to-coast Levittown with two-story houses, so that every family in the United States could live upstairs and operate a business downstairs, with a small garden in the backyard so that no food has to be wastefully transported across the country.
There are probably hundreds of people in New York City who make more than you, John Médaille, and I put together, but work for someone else and rent an apartment. Are they being treated inequitably or unjustly?
The easiest way to move toward a truly free market is to remove the government's grip on it. It is the government's taxes, regulations, and subsidies that make the market unfree, not usury, wealth without work, the inequitable distribution of land, and the lack of a just wage. Médaille may want to right these perceived wrongs, but doing so will not move us toward a truly free market.
[Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More • By John C. Médaille • ISI Books, 2010 • vi + 282 pp]