Distributism: a Critique

Distributism is often characterized as a “third-way” economic alternative to the opposing ideologies of Capitalism and Socialism and has gained ground among Catholics since G.K. Chesterton and other Catholic thinkers first conceived and coined the term “Distributism” as the economic system truly compatible with church doctrine and the Catholic worldview – of course implying that all other economic schools of thought are not compatible. However, while I do like much of what Distributists have to say, their “model” seriously lacks the logical rigor necessary to label it scientific. Therefore, it is less of a branch or school of the science of economics and more of a life philosophy. Furthermore, all of those aspects of Distributism that do carry some academic rigor to it, at least those that I have seen, are clearly borrowed from other, legitimate, schools of economics like the Austrian school or the Chicago school.

Below is a short video explaining and defending Distributism. While the video was produced by a student I chose to show this video because it highlights many of the errors that seem intrinsic to the Distributist community at large, it reflects many of the positive aspects of Distributism and it is nicely condensed into a convenient 10 minute segment.

Error #1: non-local businesses, by nature of their base of operations existing outside of the community, “take money out of the community” and “concentrate” wealth among a few. While it is true that a relatively few can become very wealthy through running an inter-community operation like Walmart, for example, the idea that they do so simply by shifting wealth out of those communities and into their bank accounts is fallacious. In fact, it is based in what is perhaps the most common of economic fallacies: that economics is a zero-sum game. If the upper management of Walmart gets rich they can only do so by taking that wealth from others – and this is bad because it takes it out of the community, making the community worse off and “threatening your livelihood.” What’s implied here is that, in any transaction, one party must lose while the other gains. In this instance, it is local communities and, by implication, “you and me,” who lose and big businesses that gain. However, in a free market society, businesses do not gain simply by taking from others – that’s called stealing (and, occasionally, some businesses do steal) – no, they make a profit by generating more wealth. Money may leave a community when people buy products from Walmart but goods enter the community, goods that are worth more to the inhabitants than the money they spent on them – otherwise, they would not have bought them in the first place. We need to remember that money derives its value as a token that can be exchanged for the goods and services that constitute real wealth. Walmart may get the money, but only by giving up some of the wealth that it produced. The economic reality looks something like this: Walmart produces goods, people buy those goods, both parties get something that they want. Economics is a positive-sum game. Additionally, much of the profits “sucked out” of the community by companies like Walmart are then re-invested back into the company so that they can provide more and better goods and services to their customers in the future. As money circulates and more wealth is created the standard of living for everyone rises.

How dare you provide us with a wide variety of inexpensive goods at a single convenient location!

Furthermore, what defines whether a business is “big” or not? Or even if it is local or not? The problem laid out by the Distributists is defined in subjective terms and is, therefore, constrained in arbitrary ways. The business is only big from the perspective of the local community. If big businesses endanger livelihoods by sucking money out of a community then it can be argued that local businesses are also bad because they “suck money out” of individual homes. The only “good” kind of transactions possible are those that occur within the home. Essentially, the only way to eliminate these “bad” transactions that “threaten your livelihood” is to constrain all economic activity to within each home, making each household an economically exclusive and completely independent entity. However, one household, standing alone, cannot produce everything that it needs – at least not anywhere near current standards of living. Economic transactions with others might not be so bad after all.

Error #2: Distributism is not Capitalism. Or, as I’ve heard some Distributists describe it: Distributism is “technically” a form of Capitalism but we must not call it that because that will “confuse” people. However, its been my experience that to oversimplify  matters in such a way in order to avoid confusion only ends up, by denying reality, only confusing people and convoluting matters even more. Technicalities are often incredibly important: as my old philosophy professor used to tell me, “Don’t just look at the ‘big picture.’ Details are everything!” The definition given for Capitalism in the video is: “An economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” This definition states two things: first, that Capitalism is based on the private ownership of property and, second, that economic activity in a Capitalist economy are determined by the incentives of profit and loss (although, that last part, loss, is often underemphasized by non-economists including, apparently, Merriam-Webster). The first part, property rights,  is the fundamental principle that Capitalism is based on and it is the exact same base of Distributism. It is the second part with which Distributists try to separate themselves and therefore claim that they are not in fact Capitalists. However, every Distributist I’ve encountered has at least implied that Distributism does still run on a profit and loss system. Additionally, this second aspect really does not so much refer to a system as it does to a human reality: no one works for an employer or starts their own business in order to incur losses. Individuals trade and manage industry in order to create more wealth, and they do it with the end of making a living in mind, that is, to profit. To deny this isn’t so much to deny Capitalism as it is to deny the human psyche. Socialism ignored people’s interests, desires and what incentivized them; millions died as a result. If Distributism ignores the importance of profit and loss it too will unintentionally lead to negative consequences.

Distributists view this profit and loss system as a system based on greed in which others are disregarded, where the poor get poorer and the rich get richer. It is soulless competition. Instead, they emphasize “cooperation.” However, Capitalism is based just as much on cooperation as competition. Income in a capitalist economy is earned not through “selfishness” but by helping others. Economists James Gwartney, Richard L. Stroup, and Dwight R. Lee explain,

People who earn large incomes do so because they provide others with lots of things that they value. If these individuals did not provide valuable goods or services, consumers would not pay them so generously. There is a moral here: if you want to earn a large income, you had better figure out how to help others a great deal.

Nobel laureate Milton Friedman put it another way: “Fundamentally, there are only two ways of co-ordinating the economic activities of millions. One is central direction involving the use of coercion … The other is voluntary co-operation of individuals.” The “voluntary co-operation of individuals” Friedman is referring to is Capitalism, which, really, simply means an economy without coercion in which private property rights are protected.

Distributism recognizes money as a means, not an ends, but then so does every other school of economics, including the Capitalists.

Error #3: Overemphasis on localism. Distributism places such an emphasis on localism that the very idea of big business is spurned (see error #1) and individual households are encouraged to be self-reliant. However, while buying local, making local contributions with your money, time and talents and increasing your families economic independence are all good things treating localism and globalization as mutually exclusive is a mistake. A healthy economy requires both a vibrant local community (because, thats where you live after all) and free trade with the outside world. This is for a number of different reasons.

First, globalization offers the advantage of spreading and thereby reducing risk. The recent heat wave that swept through the United States this summer is a perfect example. In an entirely local economy, such a heat wave and the subsequent crop failure would have doomed countless communities to famine and significant malnutrition or even loss of life. However, because those communities don’t exist in a bubble but are part of a much greater economy spanning the entire continent they hardly felt the effects of the crop failure except in the temporary rise in food prices. This is because much of our food is now imported from other communities in the US or even other continents. Sure, small local farms are certainly more personal than large corporate-owned farms located halfway around the world but is “personality” worth the increased risk of often deadly conditions like famine that, until recently, have always plagued us?

We also have globalization to thank for not having to stock our pantries to the brim in anticipation of winter. Instead, we can simply purchase produce from parts of the world where the seasons differ from our own.

Second, globalization is important because of the economic reality of “economies of scale” which refers to the fact that the more mass produced a particular item is the less expensive it becomes to produce that item (to a certain point). Essentially, the bigger the business the more efficiently it can produce, that is, the more wealth it can create with less cost. The peak efficiency of an economy of scale far exceeds the market demands of any local community. Thus, in order to use scarce resources in the most effective way possible demands businesses that operate on an inter-community or even international level.

Third, the laws of absolute and comparative advantage demand that, in order to use scarce resources effectively and thereby reduce prices and increase standards of living and independence, trade between communities, regions and even nations halfway around the globe from each other must be open and free. In economics, the law of comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another. Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies. Thus, Maine would be better off buying oranges from Florida rather than trying to grow them in the frigid north and Florida is better of buying maple syrup from Maine rather than trying to produce it in the hot climate of the southern United States.

Finally, we must ask how Distributism would even promote localism. Good intentions are nice but they are not enough. Localism can only be enforced by taking away people’s liberty, since they have made it clear that they prefer to cooperate and trade with outsiders when it benefits them. San Francisco demonstrates the logical conclusion of political localism when they indiscriminately ban all chain stores in some areas. It is vital that, in defending and promoting the private ownership of the means of production that Distributism does not inadvertently destroy it as San Francisco has.

While I believe that Distributism has many good things to say, that too much of our wealth is owned by too few, its criticism of the central banking system, its endorsement of credit unions and co-operatives, the necessity of living within ones means (both at the individual and national level) and its emphasis on the importance of the home and family as the core unit of society and therefore the economy, my worry is that, through a lack of rigorous standards, by failing to avoid the pitfalls of various economic fallacies and through ambiguity, the careless use of language and a failure to define terms, Distributists will condemn themselves to embracing ideologies that, in practice, will only lead to the same negative (albeit, unintended) consequences resultant from the very systems of socialism and crony capitalism that they seek to counter, aiding, instead of obstructing, in the corrosion of liberty and prosperity and in the establishment of a totalitarian state.

If the ultimate goal of Distributism appeals to you (to make as many people property owners as possible) then I would recommend two main sources: first, read Church teaching on social justice (Pope Leo XIII’s Rerum Novarum is a good place to start) and, secondly, read economists like Friedrick von Hayek, Frederick Bastiat, Milton Friedman and Thomas Sowell – all of whom support the decentralization of power and ownership. Only after reading these more rigorous and defined thinkers would I then expose myself to the more nascent Distributism.