Abundance, Generosity, and the State

CONCLUSION

Starting from Benedict XVI’s encyclical Caritas in veritate, we set out on a long intellectual journey that led us to outline an economic theory of gratuitous goods. Our motivation was to integrate this theory into the larger edifice of political economy.

In this endeavor, we have been able to rely on several important predecessors. In the nineteenth century, Frédéric Bastiat was a strong voice in highlighting the gratuitous benefits resulting from private property and free markets. Among twentieth-century authors, Ludwig von Mises, Josef Pieper, and Kenneth Boulding were the most helpful sources on which we could rely. But the bulk of the work still had to be done. We have made some headway in the present volume, even though we cannot claim to have exhausted our subject.

The main difficulty was to overcome the presuppositions engrained in the conventional literature. The development of the theory of gifts has been greatly hampered by Marcel Mauss’s influential work, which purported to disprove the very possibility of pure gifts, as well as their desirability. Similarly, the beneficial side effects springing from for-profit activities on the market have been underappreciated, not only because of Aristotle’s nefarious equivalence postulate, but also because contemporary economists have gone to great lengths in order to not notice these side effects, or to explain them away as market failures, as deviations from the (false) ideal of complete markets.

We have defined gratuitous goods as goods that are received or provided in excess of legitimate claims and obligations. A gratuitous good cannot be defined in physical or technical terms. It needs to be defined in reference to the moral-juridical notion of private-property rights. We have furthermore argued that donations fall into a basic economic category of their own, very much like the Mengerian concept of capital. We have studied the interdependence between markets and donations, highlighting the crucial roles of the virtues and of inheritance. We have also seen that a free economy is infused with various forms of gratuitous goods that come about as side effects of other activities. In particular, market competition itself is an important vehicle of such gratuitous side effects, which most notably spring from savings and from the pricing process.

Last but not least, we have come to conclude that gratuitous goods tend to grow and shrink more strongly than the market. In a free economy, donations and side-effect goods flourish when the market grows, but even more so than the market, because of the saturation effects of increased capital accumulation. Similarly, when market activity stagnates or declines, then donations and side-effect goods drop, too, but even more so.

In short, gratuitous goods blossom in the context of a free society and a free market. This is a fairly original result by the standards of present-day scholarship, but its originality is largely due to the fact that most of the scholars working in the field are blissfully ignorant of the side effects of market exchange and, especially, of the nature and effects of government interventionism. Many authors suspect economic freedom of encouraging irresponsibility, indifference, coldheartedness, and rugged individualism. And there is no doubt that we have plenty of these problems in our world today. But economic freedom is not their cause.

The gratuitous production of economic goods is liable to be limited by a number of factors. Gifts can be perverted into compensation for services rendered. Beneficial side effects of human action can to some extent be privatized. There is fraud and violence. There is quackery. But the greatest threat to the gratuitous economy is government interventions. By their very nature, the latter cannot provide genuinely gratuitous services. Moreover, they undermine private donations by impairing the ability and willingness of households and firms to make donations. They encourage the abuse of gifts and facilitate the coercive privatization of side-effect goods. Permissive interventions with the help of the monetary printing press are especially harmful. They enable financial leveraging on a massive scale and thereby increase the opportunity costs of donations. And they also entail a momentous redistribution of wealth from the haves to the have-nots, bringing into being a caste of philanthro-capitalists (or rather philanthro-cronies, as we have argued) with inordinate and nefarious influence on public policy.

State interference has always thrived on the prospect of getting something for nothing. Bastiat hit this nail on its head when he defined the state as “the great fiction by which everybody seeks to live at the expense of everybody else.” It is a fiction. Modern government is a black hole for gratuitous goods. It does not operate gratuitously, but in all its activities is deeply interested in its own survival and flourishing. The main beneficiaries of the state are its own servants, especially its bureaucratic and political leadership, whereas it systematically destroys the true sources of gratuitous goods: families, friendship, private associations, businesses, and the market process.

Many present-day scholars of the gift economy, the nonprofit sector, and related subjects ignore these facts. When they set out to interpret human behavior inside and outside of today’s markets, they wrongly presuppose that they are dealing with a regime of pure and perfect economic liberty. And thus they fall prey to fateful categorical mistakes in ascribing causes, consequences, and responsibilities. They chide private property and economic freedom for the flaws that, in fact, result from interventionism.

This error is not new. It has plagued many thinkers and intellectual movements that sought to rectify social and economic excesses yet failed to identify interventionism as the root cause.

The problem was already manifest in the social philosophy of Plato and Aristotle. They observed that markets and finance were growing without any visible limitation. But they dealt with all questions relating to money and finance in an extremely superficial way. As a consequence, they did not understand the causes of this cancerous growth. Aristotle argued that the return on capital had no natural limits. A free market would lead to a more or less automatic and unbounded multiplication of capital. The quest for profits was unlimited as such, and capital was therefore bound to be growing by the day. For-profit activities were by their very nature disorderly.

However, Aristotle’s reasoning is fallacious. Investments do not automatically multiply the capital of the investor. In practice, the accumulation of capital is severely limited by robbery, fraud, expropriation, and investment errors. But most importantly, as we have seen in the preceding pages, in a genuine market economy, the accumulation of capital is subject to a powerful saturation mechanism. The more capital is invested, the lower tends to be the expected return. Things only change, and rather radically, when inflationary monetary policies facilitate financial leveraging. In an inflationary regime, the “commercial acquisition of money” (Aristotle’s expression) is indeed disorderly and becomes unbounded.

We may therefore say: Aristotle’s intuition was correct, but his explanation was flawed. The Athens of his day featured a very strong monetary interventionism and, therefore, a very elastic scriptural money supply (see Cohen 2011). The disorder and cancerous growth he saw in market activities was indeed that of an inflationary economy.

In the 1920s and 1930s, the same misconception plagued the intellectual movement called distributism. G. K. Chesterton and Hilaire Belloc were right on target with their observation that the post-Christian world relentlessly tended toward centralization and dependence, a condition which Belloc called the servile state. He also perceived that, in the UK, this process was reinforced through the revolution of property rights under Henry VIII, who expropriated the church and greatly magnified the landholdings of the aristocracy (see Belloc 1912, section 4). However, Belloc completely misapprehended the process that would entail ever further centralization, concentration, and dependence. As he had it, the initial wealth of the robbers automatically fed on itself (pp. 72–77). A momentous error! In a free-market economy, the initial size of individual wealth does not at all determine how it will develop. There is no economic law according to which the big capitalists necessarily grow ever bigger in a free economy.

Another notorious case featuring the same error is Karl Polanyi’s explanation of what he called the great transformation of modern economies. Polanyi (1944, chap. 6) held that this great transformation was rooted in the fallacious idea of elevating private-property rights into a universal principle. He pointed out that this had never been the case in the past: before the Industrial Revolution, private property had always been strictly “regulated”—the political authorities always had manifold possibilities to coerce property owners into behaving in a certain way. Then came the nineteenth century, and all the chains and fetters were taken off the private-property beast, which subsequently grew by leaps and bounds and eventually subjected all people and all resources to its will. People, land, and money were turned into “fictitious commodities.” Society itself was turned into a “market society” and absorbed by the insatiable market process.

Polanyi affirms his central conviction not in the form of an argument, but in the form of an assertion. In Polanyi’s book, as in Aristotle and in distributism, there is no discussion—not even the slightest sign of any awareness—of the problems of monetary interventionism. Polanyi and Belloc fell prey to the same error as Karl Marx. They confused the economic laws of interventionist systems with the laws governing a free society. Some thirty years ago, HansHermann Hoppe ([1993] 2006, chap. 4) dissected this logical error in a brilliant essay which is still not known widely enough.

As we have seen, markets may indeed grow like cancer and swallow friendship, community, selfless dedication, and gifts on the way. But these are not natural markets, but markets inflated by monetary interventions. Unless this categorical difference is recognized, there is little hope of making any progress in the economics of gratuitous goods. Monetary interventionism profoundly uproots and perverts the operation of a natural economy, not least of all with respect to donations of time and money, and with respect to the side effects of market exchange. If the present book does no more than bring this problem to the attention of a wider public, it will have fulfilled its mission.