When the Berlin Wall fell and the Soviet empire began to collapse, decent people everywhere rejoiced. Central economic planning was widely discredited around the world. Yet the triumph of capitalism did not go undisputed. Although the market's critics acknowledged the mortal blow socialism had suffered following the collapse of the economies of Eastern Europe, they denied that the free market was the only remaining alternative. The market, they insisted, had problems of its own.
Some of these critics write as Catholics in the distributist tradition. Distributism, made popular by early twentieth-century British Catholics Hilaire Belloc and G. K. Chesterton, is a variant of corporatism, a system of political economy born in the wake of the French Revolution that sought the resurrection of various corporate bodies, such as the guilds, that the revolution had suppressed. Corporatists sought to manage economic competition, which they viewed as destructive and destabilizing, by grouping occupations into self-regulating trade associations and granting the central state a supervisory and coordinating role over business and labor.
According to distributists, the unhampered market led to radical economic inequality and the dispossession of the vast majority of the people who lacked productive property and had to rely for their sustenance on the good will of employers. Cutthroat competition destroyed small competitors and led to monopoly. These injustices might be redressed by a return to the less individualistic medieval economy, when productive property was widely distributed, guilds kept competition in check, and the poor and vulnerable were better cared for.
The arguments offered in defense of this system, while perhaps superficially plausible, turn out to be based on logical and economic fallacies, as well as on a serious misreading of European history. Distributists blame widespread indebtedness on the free market instead of on central banks (which are creations of government) that make credit artificially cheap and thus all the more tempting--an abuse whose effects the global financial system is now suffering. The medieval economy that distributism holds up as a model bears little resemblance to that which professional historians and economists have come to understand. Neither land ownership nor ownership of the means of production was widely dispersed under the feudal system. Even urban workers outside traditional feudal bonds often did not own the means of production. Peasants labored exhausting hours and barely made ends meet even with all members of their families working. The guild system, far from being a liberating force, was actually the source of true monopoly and exploitation.
Advocates contend that distributism is a superior form of economic organization and is required by Catholic social teaching. Neither claim is true.
Distributists argue that economic concentration occurs systematically and inevitably under a capitalist system. Larger stores are alleged to win market share at the expense of smaller stores by selling below cost in order to drive out their competitors, and then recouping their losses by raising prices once the rivals have folded.
There has developed over the years considerable literature on predatory pricing as a monopolizing device, very little of which has been favorable to the theory. Economist George Stigler has gone so far as to declare, "Today it would be embarrassing to encounter this argument in professional discourse." To be sure, there is no shortage of examples of large stores offering low prices, but the windfall that is supposed to occur when they allegedly raise prices again once they have the field to themselves seems to be the stuff of myth.
A great deal of the guild mentality persists in the U.S. economy and can be seen in the behavior of such organizations as the American Medical Association and the American Bar Association. Such bodies lobby the government to institute stiff requirements to acquire a license to practice, and to place obstacles in the path of anyone else who might want to provide medical or legal services. A privileged few reap abnormally high salaries while the vast majority is made poorer by higher fees--and if anyone should attempt to give consumers an alternative to such exploitation, the guild quashes the challenge.
Although distributists promote their reforms as helping to bring economic life more into line with the vision described by Catholic social teaching, these examples throw that claim into serious doubt. The poor would be fleeced and taken advantage of at every turn, with every good and service they need artificially inflated in price. The barriers to entry erected by guild restrictions inhibit the entrepreneurial activity that is one of the most effective and dignity-enhancing avenues for the poor and marginalized to better their situation. Such barriers run contrary to the exhortations of John Paul II to encourage the fuller "participation" of needy people in the economy, "to acquire expertise, to enter the circle of exchange, and to develop their skills in order to make the best use of their capacities and resources" (Centesimus Annus, no. 34).
In a true market system, no one may employ state coercion to gain an advantage at his neighbor's expense. No transaction can take place without the willing consent of both parties. The market economy thus treats human beings as ends in themselves, a moral principle on which Catholic social teaching insists.
The market economy is the remarkable engine of civilization that people are all too often taught to hate. The less heed we pay to slogans and propaganda, and the more we study the question on its merits, the more attractive does the market become. All other economic systems make fantastic promises that turn out in practice to be cruel and empty delusions. Theory and experience alike testify that the market alone can deliver an economy that is just, humane, and prosperous.
Thomas E. Woods, Jr. (http://www.ThomasEWoods.com) is a senior fellow at the Ludwig von Mises Institute. He is the author of many books, including New York Times bestseller The Politically Incorrect Guide to American History, the Templeton Enterprise Award-winning The Church and the Market: A Catholic Defense of the Free Economy, and the newly published Beyond Distributism (Acton Institute, 2008), from which this article is excerpted.