This post is the third in a series of posts on John Médaille’s book, Toward a Truly Free Market. To start at the very beginning–a very good place to start, mind you–find the first post here, and the second here.
Chapter two of John Médaille’s book revolves around his take on capitalism. He’s not a fan, and he doesn’t think you should be one either. He produces a chart with a hundred years worth of data on it concerning the American economy, discusses that chart for a page and a half, and is ready to call the debate for his side:
This leads us to an unavoidable conclusion: capitalism and the free market are incompatible. History shows, beyond any reasonable doubt, that the growth of capitalism and the growth of government go hand in hand. Capitalism and big government are not, as in the popular imagination and the economic treatises, things opposed; rather, the one grows on the back of the other, and the more you get of one, the more you will need of the other. (15)
Sadly, this is par for the course for this chapter, and there’s almost nothing helpful here. That is, there isn’t much helpful with respect to better understanding political economy, history, justice, or ethics. He begins with an equivocation on what capitalism is, and uses this shaky foundation to build up arguments full of insinuation and bluster. Chapter two is helpful, however, for understanding Médaille’s approach to his work. He is more salesman than economist or historian; more of a propagandist than anything else.
None of this is meant to besmirch the man. Salesmen are not bad people. I aim to take up something like a defense of capitalism in this very post, after all. It would be weird to start such a thing by insulting people who sell stuff. Neither are propagandists all bad. Sometimes they make cool posters. When we like their work, we call them popularizers. The catch is, a salesman needs to have a solid product and a propagandist ought to advocate for something good, true, or beautiful. When these crucial elements are lacking, it discredits the whole project. And that’s what Médaille has done here for distributism. He’s too much in the tank to make a coherent argument that would persuade people who aren’t persuaded already. Again, I’m not saying he’s a shyster or a bad man. He could be innocently wrong here. But I am saying that this chapter is incoherent and should never have been written.
Let’s see if we can start at ground we hold in common and then get from there to why I found this chapter so unhelpful. Hopefully you’ll agree with me that ethics deals with fitting ourselves to what is real. Ethics is based on metaphysics. Médaille spent his first chapter claiming the high ground when it comes to combining economics and ethics, so we should assume that he has a good sense of how what is real relates to what he is proposing. However, in this chapter’s retelling of American economic history, Médaille somehow fails to distinguish between big government conservatism in America and Britain in the 1980s, the political economy in America in the years between 1900 and 1945, Hayekian economic theory, and pure capitalism. In his treatment of Ronald Reagan, he fails to distinguish Reagan’s rhetoric from Reagan’s policies. He jumbles all these things together under the label “capitalism,” and it’s no wonder the argument comes out as a mess. Further, it is only as a mixed-up jumble that Médaille could claim with any kind of justification that the idea of capitalism has failed “in exactly the same way in every case” of failure in the 20th century (18). The first half of that century saw the creation of the Federal Reserve, the institution of the income tax, the Great Depression and the New Deal, two hugely disruptive world wars, and a whole host of other massive government interventions into society, and Médaille is so bold to write “pure capitalism disappeared in the 1940s, caught in its own contradictions” (21).
Just as we struggle with ethics if we’re not grounded in metaphysics, it’s hard to evaluate an economic system if we don’t know what that system is. For Médaille’s assertions to make any sense, capitalism would have to be an arbitrary system that is whatever someone claims about it. But it is not that, and Médaille is not ready to critique capitalism because he does not understand what it is. Just as it makes no sense for a man to claim that his blue shirt is green, it makes no sense for a President to claim to be a capitalist and then turn around and manage the economy like Wilson, Roosevelt, Reagan, or Bush did (or Trump does, or the next guy will…). And in just this way, it makes no sense for an author to claim that an era that saw enormous government interventions into the economy leads to the “unavoidable conclusion” that “capitalism and the free market are incompatible” (15).
This is more than a quibble about definitions, with me taking a strict definition of capitalism and Médaille taking a more broad definition according to how it’s used. Recall Médaille is trying to show us why we need to listen to him when it comes to ethics and justice. He’s trying to show how we’ve got it all wrong so far. But as he’s trying to sell us his vision, he evidences no particular understanding of what pure capitalists actually claim, and no particular understanding of any of the history involved. Why would anyone think that the creation of the Federal Reserve was the necessary result of pure capitalism’s own contradictions? What do private property rights have to do with the Great Depression, or any of the other recessions on his chart? What about deregulation? He would need to address questions like these to prove his case. He would need to demonstrate why these interventions were necessary. Instead, he’s contented himself to talking about second- and third-level issues with no attempt to show us that he’s understood the first- level issues.
One of the stranger aspects of the “failure of capitalism” conversation is that the mistakes Médaille makes in this chapter have been consistently answered by capitalist theorists for decades. Consider Ludwig von Mises’s essay from 1932 called “The Myth of the Failure of Capitalism.” Médaille’s line of argument is similar to the line the Marxists took in Mises’s day:
The line of argument that leads to blaming capitalism for at least some of these things is based on the notion that entrepreneurs and capitalists are no longer liberal but interventionist and statist. The fact is correct, but the conclusions people want to draw from it are wrong-headed. These deductions stem from the entirely untenable Marxist view that entrepreneurs and capitalists protected their special class interests through liberalism during the time when capitalism flourished but now, in the late and declining period of capitalism, protect them through interventionism. This is supposed to be proof that the “hampered economy” of interventionism is the historically necessary economics of the phase of capitalism in which we find ourselves today. But the concept of classical political economy and of liberalism as the ideology (in the Marxist sense of the word) of the bourgeoisie is one of the many distorted techniques of Marxism. If entrepreneurs and capitalists were liberal thinkers around 1800 in England and interventionist, statist, and socialist thinkers around 1930 in Germany, the reason is that entrepreneurs and capitalists were also captivated by the prevailing ideas of the times. In 1800 no less than in 1930 entrepreneurs had special interests which were protected by interventionism and hurt by liberalism.
Today the great entrepreneurs are often cited as “economic leaders.” Capitalistic society knows no “economic leaders.” Therein lies the characteristic difference between socialist economies on the one hand and capitalist economies on the other hand: in the latter, the entrepreneurs and the owners of the means of production follow no leadership save that of the market.
At the beginning of the 20th Century, men like Rockefeller and Morgan had a bunch of capital, but they weren’t capitalists in the sense of believers in a capitalistic economic theory. These men were “captivated by the prevailing ideas of the times,” and the politicians of the day right along with them. In fact, as Murray Rothbard explains here, we got stuck with the Federal Reserve when these Zeitgeist-filled men all conspired together to make it be. This was not a necessary outworking of capitalistic economic theory, nor was it a needed intervention to steady out the economy. It was a power play characteristic of the Progressive Era, an era which saw technocrats and bureaucrats seizing control of various sectors with the belief that they could be managed to perfection. And so it makes no sense to say that this era proved the failure of capitalism. To argue in this way is to equivocate on what is being discussed and to bring darkness to the subject instead of light.
Imagine, if you will, what Médaille might say if someone used his style of reasoning against him. Médaille is a Catholic and much of the literature in the distributist library has been produced by Catholics. How would one expect Médaille to respond if someone brought up an example of recurring corruption among the priesthood over a period of a hundred years within the Catholic church and dismissed Catholicism because of that corruption? If that corruption had actually taken place and was provable, do you expect he would abandon Catholicism because this corrupt priesthood “grows on the back” of Catholicism, and the more you get of Catholicism, the more you need corrupt priests to make Catholicism work? Of course not. Catholicism is a thing. It is a system and a religion with definable characteristics. If Médaille decided to answer this critic at all, he would presumably set about showing how corruption isn’t essential to Catholicism. He might explain that examples of corruption within Catholicism are not due to that religion’s defects but are rather due to man’s corrupt nature, which Catholicism grants.
Capitalism is not a religion. That’s not the parallel here. But, like Catholicism, capitalism is a system with actual definable characteristics. And, just as Médaille would not call Catholicism all that the imaginary critic would call Catholicism, we ought not call capitalism all that Médaille calls capitalism unless and until he demonstrates that what he asserts is true. It is true that capitalism does not prevent men from seizing power in its name, and it does not itself expose them as hypocrites when they use “capitalism” as a cover for their interventionist policies. No economic theory will perfect mankind. If economic theory could perfect us, Jesus would have given us economic theory instead of giving us Himself. Neither can economic theory self-enforce one hundred percent consistency. But capitalism never claimed to be able to do those things. And, in the same way that corruption in the Catholic Church doesn’t disprove Catholicism, corruption in a more capitalistic country’s economy does not disprove capitalism.
Now, as a Protestant, I actually believe there is corruption baked into the essence of Catholicism. Priests should not have to take vows of celibacy because celibacy is not required by God of his ministers. So these priests wind up vowing themselves to a pattern of behavior which God never promised to empower them to maintain. And the logical result, as well as the historical result, is sexual frustration leading to sexual corruption within the ranks of the Catholic priesthood.
Of course, it is not my aim in this post to beat up on Catholics. I simply mean to show from one more angle what type of argument would have done the work Médaille wanted to get done in this chapter, and what kind of argument was conspicuously missing. “Because capitalism” is a lousy way to demonstrate causation.
So then what is real capitalism? There is no official catechism of capitalism like there is for the Catholic church. It’s true that the term ‘capitalism’ was coined by anticapitalists who wedded the ‘capitalistic mode of production’ to a specific understanding of exploitation. But that’s not what Médaille is talking about here. Throughout this chapter, Médaille is often specifically talking about capitalism as represented by Hayek and the Austrians. And because this is his frame of reference and the theory in his cross-hairs, maybe we can trust what Mises said above: a capitalist economy is one in which entrepreneurs and owners of the means of production follow the leadership of the market, and no other. Médaille has failed to show us that capitalism understood in this way is broken.
For my own part, the best explanation of capitalism I’ve heard comes from elsewhere in Mises. I linked to in my first post, but I’ll quote it here for good measure:
The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybody’s actions aim at the satisfaction of other people’s needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens…
This system is steered by the market. The market directs the individual’s activities into those channels in which he best serves the wants of his fellow men. There is in the operation of the market no compulsion and coercion. The state, the social apparatus of coercion and compulsion, does not interfere with the market….It protects the individual’s life, health, and property against violent or fraudulent aggression on the part of domestic gangsters and external foes….Each man is free; nobody is subject to a despot. Of his own accord the individual integrates himself into the cooperative system. The market directs him and reveals to him in what way he can best promote his own welfare as well as that of other people…
The market is not a place, a thing, or a collective entity. The market is a process, actuated by the interplay of the actions of the various individuals cooperating under the division of labor. The forces determining the–continually changing–state of the market are the value judgments. The state of the market at any instant is the price structure, i.e., the totality of the exchange ratios as established by the interaction of those eager to buy and those eager to sell…..Every market phenomenon can be traced back to definite choices of the members of the market society.
The market process is the adjustment of the individual actions of the various members of the market society to the requirements of mutual cooperation. The market prices tell the producers what to produce, how to produce, and in what quantity. The market is the focal point to which the activities of the individuals converge. It is the center from which the activities of the individuals radiate.
Because this is what capitalism is, it is appropriate to say, as I have said, that capitalism is based on love. Two things are meant by this. First, men’s value judgments drive capitalism. They seek what is valuable and desirable to them. They seek what they love. Recall from that first post that “love” can be righteous or it can be wicked, depending on the thing loved. If men find wickedness desirable and falsely believe that evil is desirable, they will go after these ends with abandon and a purely capitalist economy will not keep them from it. However, if they value righteousness and love what is lovely, a purely capitalist economy will not keep them from pursuing praiseworthy ends either. In a capitalist economy, the market reflects the values of the society.
As a side note, this is actually the best line of critique of pure capitalism to my mind. What kind of limits ought a society to impose upon men to restrain their evil? Do men have a right to do anything they wish with their property as long as they aren’t aggressing against someone else? And if property rights ought to be limited somehow according to true religion (or some other standard), what does this mean for laissez-faire economic theory? I hope to write out my answers to these questions at some point, but because this is not the line of argument that Médaille pursues, my extended thoughts on these matters don’t belong here.
More to the point of this post is the second way that capitalism is based on love. It is related to the first. Not only do men’s loves/desires/needs/values make up the market, but because they do, the way to “get ahead” in a free market is to serve other men by giving them what they want and providing for their needs. Again, the free market is not a moral panacea, and men may love wrongly. Still, capitalism teaches a man to find a way to meet other men’s desires, to benefit his neighbors by serving them in some way. This is a good skill to have, and capitalism teaches it. Economist George Gilder is especially good on this point:
The unending offerings of entrepreneurs, investing capital, creating products, building businesses, inventing jobs, accumulating inventories–all long before any return is received, all without any assurance that the enterprise will not fail–constitute a pattern of giving that dwarfs in extent and essential generosity any primitive rite of exchange. Giving is the vital impulse and moral center of capitalism. (Wealth and Poverty, 35)
Hopefully we can circle back around to the morality of markets when Médaille develops his ideas of justice and property rights more fully. For it is not a subjective love based on man’s felt-needs that fulfills the law, but a love that is in accord with what God has commanded. And so, to act justly in accordance with the law is to do no wrong to a neighbor, to love your neighbor truly (Romans 13:8-10). Justice, law, and love are all tied up together, and Médaille is correct to say we shouldn’t forget about them in our economic theorizing. However, truth also ought to be part of our theorizing, and in chapter two of Toward a Truly Free Market, Médaille managed to write nearly ten pages worth of things that aren’t so.
Postscript: Oddly enough, Médaille’s approach to the economic history of America in the 20th Century in this chapter was the approach of the new economic historians, not of the political economists of old. In chapter one, Médaille spent a good chunk of his time explaining how economics does not “draw its proper methodology from physics, astronomy, chemistry, or any other physical science” (4). Now in chapter two, Médaille takes us to the laboratory of history to test out economic theories. For a good Austrian critique of this type of stuff that is more in line with what Médaille was commending to us in the first chapter, I’d recommend Joe Salerno’s essay “How to Do Economic History.”