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Does Capitalism Work?

Not according to John Médaille at FPR, who is in the midst of an essay on the economics of distributism which looks to be quite interesting:

. . .  there is a certain amount of resignation among distributists, the feeling that they are facing a system that “works,” and that our major task is to add a moral dimension to an already fully functioning system. For example, Daniel M. Bell writes, “The empirical question put to capitalism cannot be ‘does it work?’ The obvious answer is “yes.” At first glance, Prof. Bell’s statement would appear to be true: we do see a working system around us, however imperfectly. However, the working system we see is not capitalism, but Keynesianism. The best one can say from the empirical evidence is that Keynesian Capitalism works. But to say this is to already destroy the argument of the capitalists, or at least of the pure capitalists. If capitalism is a system that requires massive government intervention to balance supply and demand, then it’s purely economic claims must be called into question.

Under the free market rhetoric of “conservative” regimes, the government has not shrunk, but expanded, so much so that we now have a government of nearly imperial power and privilege, headed by an imperial presidency that ignores not only the laws of congress and the Constitution, but even basic human “laws” such as the law against torture as an instrument of state policy. Government expenditures as a share of GDP are about the same as they were before the conservative ascendancy, but the cost of government has far exceeded its tax base. The result has been an increased dependence on borrowing. At the start of the Reagan administration, the federal debt was about $700 Billion; at the close of the Reagan-Bush era, it had tripled to $2.1 Trillion. It doubled again and then doubled again, and then grew some more and now stands at about $11 Trillion and rising rapidly. This increased debt represents an effective tax increase, since borrowing is taxing too, but a tax shifted on to the next generations.

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 in government go hand-in-hand. Big 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.

Distributists will not be surprised at this result, since it exactly matches the predictions that Belloc made in The Servile State. The capitalist state, Belloc believed, would grow increasingly unstable, and could only stabilize itself by enlisting the power of government Belloc wrote before the rise of Keynes, but Keynes’ methods were no surprise to readers of Belloc. Keynes indeed found a “solution,” but Belloc had already predicted the solution, and the solution is servility. In Keynesian states, people cease to be citizens and become mere clients of the state, where even their most ordinary needs are the subject of one or more governmental bureaucracies, and where even ordinary local problems are pushed up to be the responsibility of the most distant levels of government.

H/T: Davey

3 Comments

  1. Hill wrote:

    I come quite close to self-identifying as a Distributist, and this article is generally good, but his analysis that capitalism requires Keynesianism is confused at best. I don’t say that as an apology for capitalism, but it isn’t helpful to conflate the two (very different and conceptually distinct, if not historically distinct) ideas.

    Tuesday, May 12, 2009 at 10:20 am | Permalink
  2. Hill wrote:

    This is a general warning to become cautious any time someone’s principle argument is that “the empirical evidence clearly shows that this concept requires this other concept.” Seems like there should be a Latin phrase describing this….

    Tuesday, May 12, 2009 at 10:21 am | Permalink
  3. Patrik wrote:

    Yeah this is making things a bit too simple… That the state has grown in America under Reagan and Bush does not make it a rule that neoliberalism leads to bigger states – I think that shows that neoliberalism has not really be practiced “purely” in those cases. Under W for sure, what we have seen is state sponsored capitalism i.e. a situation where the government actively tries to transfer tax money to private hands. That makes the state grow in dollars, but that is not what one usually means with a big state. Critics of Big state tend to mean a big (an expensive) bureaucracy with that term. And of course socialists would mean a state that actually tries to do something for its citizens, which neither Reagan or Bush have. So rather than an economo-political law, its a piece of rhetoric to say that big capitalism and big government go hand in hand.

    Tuesday, May 12, 2009 at 11:53 am | Permalink

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