Capitalism as an Unnatrual System

Ever since capitalism made its appearance in the late Middle Ages and came to dominate both production and politics in the late 18th century, there has been a vigorous debate on just what the nature of capitalism is. Central to these debates has been the question of capitalism's relationship to the state, and particularly the question of whether capitalism was an enemy or a child of the state. There have been no shortage of great names in this debate: Smith, Marx, Mill, Mises and many other great minds weighed-in with weighty tomes on the topic. Yet I do believe that the honor of formulating the question in the most succinct and elegant terms possible must go to Sorin Cucerai in his brief but powerful essay, “The Fear of Capitalism and One of its Sources,” in the May issue of Idei in Dialog. Mr. Cucerai is a libertarian philosopher in Romania, and his article is important because it is the most candid look at capitalism I have ever seen from an Austrian libertarian. [Note: the article is in Romanian, but for anyone who wants to read an English translation, please email me.] In but a few pages, and in a few powerful phrases, Mr. Cucerai captures the essence of capitalism and its relationship with the state.

Sorin's arguments are directed primarily at the “anarcho-libertarians” who, like the Marxists, would have a “withering away of the state.” However, the historical reality is that under “conservative” regimes the state grows as fast—or even faster—then it does under liberal and social democratic regimes. Indeed, only the communists could grow the state faster than the conservatives, and they grew the state until it collapsed of its own weight, a feat which the conservatives in America are trying to duplicate, and may yet succeed Certainly something odd is going on here. An historical reality that pervasive and powerful cannot be overlooked or ignored I the name of ideology. However, it must be noted that in “defending” capitalism, Mr. Cucerai raises questions that challenge its very legitimacy. Indeed, Marx in his attacks on capitalism never said anything as negative about that system as Mr. Cucerai does in its “defense.”

It is important to understand Mr. Cucerai's argument in its elegant simplicity. I summarize it as follows:

  1. Men naturally seek direct access to the means of subsistence, usually in the form of their own land or tools.

  2. This access makes a man less dependent on his neighbors and therefore less dependent on the markets.

  3. But capitalism is the condition of dependence on the market for one's very subsistence. Therefore, “the fundamental condition for the existence of a capitalist order is the absence of the individual autonomy in the sense of owing the source of your food,” and of forcing people to seek a monetary source of subsistence. This is not a natural condition, as is owning one's own land, because “People do not search instinctively for a source of monetary revenue.” They do so only because they are forced to do so.

  4. Capitalism is made possible only if this natural process is interrupted by an instrument that makes sure nobody could have access to food and shelter unless a monetary revenue is used as an intermediary.”

  5. “Therefore, the capitalist order is not natural. Such an order can be maintained only if there is an institutional arrangement which prevents the individual from not engaging in commercial relations through the agency of money.”

  6. That “institutional arrangement” is a government that requires people to pay taxes and fees only in the form of money. Only the state can perform this coercive function upon which capitalism depends. “The source of the revenue gets prominence over the source of food; the commercial relations are widespread because, basically, it is impossible to avoid them.”

  7. The state is necessary for another reason, namely that “free competition is as unnatural as capitalism itself.” In absence of the state, commerce would be a matter of rent-seeking, a behavior only government regulation can prevent.

  8. Paradoxically, the “freedom and prosperity of capitalism” are possible only “by denying people direct access to food and shelter.” In order to have this capitalist “freedom,” we must be alienated from our own nature. But if this is done, then “he breech created between us and our nature- and between us and nature in general - open a space previously unknown to human freedom and it is a form of civilization.”

  9. Because of this fundamental alienation from nature, “ any individual that lives in the capitalist order is a fundamentally precarious being, of a radical frailty. It is the precariousness of the one who has no firm ground under his feet.”

What is remarkable about this chain of reasoning is that it can be read as either an attack or a defense of capitalism. Indeed, it is difficult to discern, from within the argument itself, which way it will turn out. Mr. Cucerai offers only an instrumental defense of capitalism, namely that it will result in more goods and higher wages. Aside from the fact that such “consequentialism” is morally suspicious, at best, there is a question of whether the basis of comparison here is valid; one would have to compare the subsistence and security of a wage-based economy with that of a property-based economy, that is, of Mr. Cucerai's “unnatural” economy with a more natural one. We know that in 16th century England, before capitalism came to dominate social relations, a common laborer could provision his family by 15 weeks of work, and a skilled laborer by 10. A century latter, after the closing of the commons and the seizure of the monasteries, which instantly converted England into a capitalist country, those numbers became 40 weeks and 32 weeks, respectively.1 Moreover, in a global economy, it is necessary, to weigh the wages of the workers in sweatshops before reaching a judgment on this question. Further, the plain fact of the matter is that nations which fed themselves comfortably for millennium before the coming of the capitalists find themselves starving under Mr. Cucerai's “freedom.” But laying that question aside, we can address the strength of Mr. Cucerai's arguments.

The first point is that this is very much an Aristotelian argument, even if it reaches conclusions opposite to Aristotle, in its division of economics into “natural” and “unnatural” exchanges. For Aristotle, natural exchange was that necessary to provision the household, while unnatural exchange had money alone for its object. The first sort of exchange was “natural” in the sense of having a natural limit. For example, a man buying bread for his family will buy what he needs and no more. But a man whose object is not bread but money might buy up every loaf of bread and every grain of wheat in order to corner the market and set the price to his own advantage. Since there is no limit to such exchanges, Aristotle regarded them are “unnatural.”

The second point we can note is how well the arguments accord with the actual history of capitalism. The plain historical fact is that capitalism and government grow hand in hand; the larger the business entities, the larger the government necessary to protect them. This fact had already been noted by Adam Smith in 1776, in The Wealth of Nations, three-fourths of which is devoted to documenting the incestuous relationship between big government and big business.

The third point is that Mr. Cucerai provides libertarianism with something it normally lacks, namely a theory of government. Hence the performance of government can be judged against that standard of its proper function. One may not agree with Mr. Cucerai's definition of the function of government, but at least the standard is explicit; the question now comes under human intentionality and can therefore be controlled, at least in principle. For the anarcho-libertarians especially, government is despised in and of itself and hence every question of government becomes an “all-or-nothing” question. But framing the question in this way always works to the advantage of the “all” of the state, since in times of crises there are simply not enough nihilists to vote for the “nothing.” Thus, the increase of state power is always and everywhere the unintended consequence of libertarianism.

The fourth point is that Mr. Cucerai has accurately described the rule-bound nature of competition and exchange, and the fact that rules must be external to the market. Indeed, competition, properly understood, only works in a larger framework of cooperation, and this cooperation is expressed in agreement to rules which are imposed by institutions of common consent. Think about a football game. It is certainly a competition, and a violent one at that. Yet, it cannot take place without the framework of cooperation, namely, that all players will be bound by the rules and judged by referees who are not themselves players in the game. Unless the game stops when the referee throws the yellow flag, the game cannot really start. Without the referee, there can be no game, but only warfare, which will continue until one side is utterly defeated or even killed, at which point both the game and competition end.

The fifth point is that Mr. Cucerai has correctly identified monetization as foundational to capitalism. One historical confirmation of this point comes from the “hut tax” that the English imposed on their African colonies. The point of this tax was not revenue; indeed, it probably cost more to collect then it raised in income. Rather, its point was to force the Africans to get something they had never needed before: a job. The climate supported the people in relative comfort with relatively low levels of work, and the Africans, left to their own devices, were happy with this arrangement. But a money tax forced them to take employment in the English mines, plantations, and factories. The point of the hut tax was not revenue, but labor.

Finally, we can note that Mr. Cucerai has certainly given us an accurate description of capitalism, and all discussions of any system must begin with an accurate description. However, it is a description that leaves out one crucial element, an element that flows from the description but which Mr. Cucerai does not address. I will return to this point a little later.

All that being said, we still cannot determine whether capitalism under this description is a good or a bad thing. Indeed, do we really want a system that alienates man from his own nature and results in a “radical frailty,” a social arrangement in which we have “no firm ground under our feet”? There is a bleak, Orwellian character to Mr. Cucerai's description in which “freedom is slavery,” in which man has to be a wage slave in order to be free; in which he has to be denied access to the ground of his freedom (that is, property) in order to participate in “free” markets. But is this a proper definition of freedom? Is it even a proper definition of economics? I believe that the author has made two fundamental mistakes: one, he has reduced all markets to monetary markets, and; two, he has confused the “free market” and “capitalism” as if they were the same, when in actual fact they are more often things opposed to each other.

A purely “monetary” exchange market is problematic in several ways. The first has to do with the nature of money, which should be merely the unit of account for all the circulating goods within a given economy. However, money can too easily be manipulated apart from the market for real goods and services. The Americans have proved, beyond a shadow of a doubt, that trillions of dollars in financial wealth can be created without having any relation whatsoever to real wealth. Men who contributed not so much as a grain of wheat to the commonwealth are paid billions from the common purse in reward for their failure. And this was done by men operating in largely unregulated markets. Money, as a unit of account, is an abstraction, and the more abstracted an economy becomes, that is, the more monetized, the more easily it may be manipulated by those “in the know” about the mechanics of abstraction, and a completely monetized economy is the easiest of all to manipulate.

The truth is that man operates in several markets simultaneously, most of which are not monetized, and all of which serve are checks on the other. When all markets are monetized, all markets fail, and fail decisively, without any hope of recovery. The first market in which we operate is the gift economy of family and the community. We are first called into being by the ready-made community of the family, and from this community we receive a variety of gifts. Our being, to be sure, but also the gift of our name, our family, our language, our first moral perceptions, our first experiences of love and belonging, and so forth. This economy of grace (gifts) is the primary economy, and all other economic and social activity must be judged from the standpoint of how will it serves the family. Without this check, there is really no way to know whether the economy “works” in any concrete sense. A fully monetized economy erodes the gift economy of the family upon which the whole social order depends. Beyond this family economy, there are economies of community service, economies of political activity (in which votes are the medium of exchange), religious economies, and so forth. All of these depend on the economy of production and exchange (note both terms), and hence are checked by that economy, even as they provide checks for the exchange and production economies.

Mr. Cucerai states that capitalism “opens a space previously unknown to human freedom.” But what he does not mention is that this must be a very small space, one occupied by the possessor's of land and capital alone. That is why we call it “capitalism.” Indeed, the very fact of denying access to the means of subsistence to most men means that a few will end up in possession of the vast bulk of these means. This point flows naturally from Mr. Cucerai's own description of capitalism, but it is the crucial point which he has left out, and without which his description cannot be considered complete.

Not only is this concentration of capital bad morals, it is bad economics and bad social theory. It is bad economics because all market theory is based on the “vast number of firms” hypothesis, which states that production is spread over such a vast number of firms so that no firm, or no possible combination of firms, can have any influence on market prices; that is to say, they are all price-takers rather than price-makers. When you have consolidation in any industry, the whole basis of the free market collapses, and monopoly and oligopoly are the result.

But that is just a part of the problem. I will skip over Mr. Cucerai's preposterous claim that you can have, simultaneously, a rise in production prices and a fall in consumer prices, as if the later were not dependent on the former, to note that rising wages are not the norm in capitalism. Indeed, in the United States since 1973 the median wage has remained flat, even though productivity for all classes of labor has increased dramatically in the same period. This means that the workers are producing more goods, but must purchase them with the same rewards. Since this is not possible, the economy has resorted to three stopgaps to maintain consumption. The first is to put more family members to work, and to work longer hours. The second is to increase the role and size of government to absorb more of the output. And the third is simple usury (consumer credit); have the class that is over-compensated—that is, the possessor's of capital—simply lend the excess to consumers to soak up the excess goods. But all three methods have reached their logical limits. The family is working as hard as it can (to the detriment of that family life which the economy ought to serve), the government cannot expand much further without discovering those limits on expansion that the soviets discovered, and the credit system has collapsed. There is no further that we can go without changing the system.

Mr. Cucerai assumes rising wages in a free market. Capitalist defenders assume that “free contract” is sufficient to ensure such rising wages. But Adam Smith noted the problems with this theory:

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine more easily...A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month and scarce any a year without employment.2

Thus Smith identifies actual wages as the result of a power relationship between masters and workers and not a result of purely “economic” forces; it is power, not productivity, that is arbitrated in a wage contract. An American CEO gets 500 times what the line worker makes not because he is 500 times more productive but because he is 500 times more powerful. The seamstress in a sweatshop gets a pittance not because her productivity is low but because her power is pitiful.

The power to negotiate a wage comes only with the power to say “no” to the terms offered, and this power comes only from the possession of an alternative to the wage. And only property confers this power. Where workers have their own property and can make their own way in the world, any wage contract they accept is likely to be a fair one, one that fairly rewards their productivity. But in absence of a real alternative, there is no real negotiation; you cannot negotiate if you cannot say “no.”

What a free market really requires is free men, and what men require to be free is access to their own means of subsistence, which is precisely what capitalism denies them. The proper ground of freedom is one's own proper ground, the very ground which Mr. Cucerai would cut out from under the worker. What is denied to the mass of men must fall to a minority of men, men who will then be the masters of society and the effective rulers of government, co-opting it to their own ends. This is what has happened. The higher the piles of capital gathered in a few hands, the thicker the walls of government necessary to protect that capital, and capital and government combine to limit freedom, to restrict property. Capitalism is therefore not to be confused with the free market, but to be identified as its mortal enemy, and to confuse the one with the other is to totally misunderstand the reality of modern economic, social, and political life.

Mr. Cucerai is to be praised for his almost unflinching look at capitalism, but he is to be critiqued because, at the last minute, he flinched, he looked away from the logical consequences of his own description to skip the crucial point upon which the whole discussion must turn. He went to the edge and turned back just a hair's-breadth from the truth. But we cannot turn back, for only if we have the courage to look at things as they are can we expect to have the strength to make them what they ought to be.

1J.E.T. Rogers, Six Centuries of Work and Wages: The History of English Labour (New York: G. P. Putnam's Sons, 1884), 239.

2Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Amherst, New York: Prometheus Books, 1991), 70


When Toilet Paper is a Major Victory

Toilet paper can be a major victory—in a Bangladesh sweatshop.

I'm on the email list for the National Labor Coalition, a tiny non-profit that documents the real conditions at real sweatshops around the world. I just got an email announcing a major victory for a clothes factory in Bangladesh called R.L. Denim. Here is what victory looks like:

  • The cowards who beat the young women—the general manager of the R.L. Denim factory and two abusive supervisors—have been fired.
  • Workers are no longer beaten at R.L. Denim. They are treated with respect.
  • Women receive their maternity leave with pay.
  • Workers are now paid correctly.
  • The factory now has a daycare center; a health clinic and a factory dining area have been set up.
  • The workers now have purified water to drink, and the bathrooms are clean and have been supplied with soap and toilet paper. [emphasis added]

Why did the R.L. Denim owners begin paying maternity leave, stop beating workers, and, yes, supply soap and toilet paper? Because when an overworked 18-year-old died, the NLC, other groups, and individuals writing letters begin to put pressure, not on the factory, but on the retailer ordering from the factory. In this case, the German-based METRO Group.

Suddenly, METRO Group discovered that when they had checked factory conditions, they hadn't quite checked hard enough. Maybe the visiting auditors hadn't needed a bathroom break.

Now they checked really hard, got properly scandalized, and publicly cancelled their order.

Suddenly, R.L. Denim discovered a vortex in the space-time-economic continuum. Economic laws deformed, snapped, and reformed all around them. Business plans burned, and rose as the phoenix from the ashes.

They discovered that maybe, just maybe, they could make a profit and provide soap and toilet paper. It just might work.

Meanwhile, the folks at the METRO Group was making even more discoveries. Though the 3rd largest retailer in Europe and the 5th largest retailer in the world, they must have had doubts about the power of their influence. Who were they to tell a manufacturer how to run their business? Why would a mighty manufacturer listen to a lowly retailer?

But behold, the giant stooped to negotiate. In a press release this morning, METRO Group explains:

A fundamental precondition on the part of METRO Group for a renewed business relationship was that R.L. Denim significantly improves working conditions. This has been done in the meantime.

True, soap and toilet paper (not to mention maternity leave) are not free. Someone will have to pay for it. Maybe R.L. Denim. Or METRO Group. Or the consumer. Or all three.

But the laws of supply and demand must include a demand for justice. We have to be willing to pay for it.

Workers in Bangladesh and elsewhere often rise up and demand an end to inhuman conditions. Often, they simply get fired, or worse (e.g. beaten). Factory owners don't seem to listen to workers.

Apparently, they do listen to the retailers who place gigantic orders.

And the retailers listen to us. If enough of us talk, with our pen and our pocketbook.

According to the NLC, Bangladesh has over 4,000 garment factories with over 2,000,000 workers.

So here's one down. Or rather, up.

More info: Major Breakthrough at R.L. Denim / Bangladesh

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Content by Bill Powell in this work is licensed under a Creative Commons Attribution 3.0 United States License.


Distributism for All of Life

I was recently sent a video clip featuring a Protestant theologian, author, and apologist by the name of Gary DeMar concerning his opinion as to why evangelicals are not appointed to the Supreme Court. His rationale was that, unlike Catholics, evangelicals tend to be piece-meal in their application of Divine Revelation. On the other hand, Catholics have historically understood the dominion mandate, both in its meaning and extent. It is all too unfortunate, according to DeMar, that modern evangelicals have a tendency to be so focused on "saving souls" that they forget that there is still a life to live and a world to disciple once one has been born again. To paraphrase my father, "they are too heavenly minded to be any earthly good." Add to this the belief that the end is moments away, and you have about as much reason to reconstruct a Christian social order as you would shining the brass on a sinking ship.

Understanding DeMar's remarks requires one to have a basic knowledge of the distinction he makes between the modern (and typically American) run-of-the-mill evangelicals as opposed to the Protestant school of Dominion Theology that he would identify with. Prior to my conversion, I also believed much like DeMar & Co. DeMar's works in the field of what has become known as Christian Reconstruction ranked up there with notables like Greg Bahnsen, R.J. Rushdoony, David Chilton, and, most importantly for me, Gary North. All of these men are "black coffee" Calvinists, adhering rigorously to Sola Scriptura, Covenant Theology, TULIP, Van Tilian apologetics (i.e. presuppositionalism), and postmillennialism. And all of these men have a strong conviction that by our applying kingdom principles to every sphere of human life we will bring about the kind of justice and peace that fulfills the Great Commission though subjecting all thoughts to Christ and by being the instruments through which King Christ takes dominion over all people in all nations, until the only enemy remaining is death.

The above mentioned convictions, when combined, create a holistic worldview. This school of thought literally touches on every area of human life. Sola Scriptura provides, at least it is believed, a normative standard by which Christians must live. Their form of Covenant Theology, over against the theological dinosaur known as Dispensationalism, places a special emphasis on the Torah. They see within God's law principles from which we can formulate political, legal, economic, and even environmental policies. Gary North and R.J. Rushdoony have written a myriad of economic commentaries seeking to draw out those theonomic principles underlying the case law of the Old Covenant, as well as those principles that can be found in New Covenant texts. James Jordan, who prefers to be called a theocrat rather than a theonomist, takes this further by including the ceremonial laws and historical narratives in his search for a truly authentic Christian order. And their postmillennialism provides the kind of optimism, not to be confused with triumphalism, that spurs them and their adherents to living this faith diligently in their daily lives, holding fast to the belief that such efforts would do more than save their souls, but would also works towards the reconstruction of a truly Christian order.

It is not my intention here to hold these men or their works as standards of hermeneutical excellence that ought to be emulated by faithful Catholics. Rather, it is in an effort to renew within the mind and heart of the faithful Catholic the age-old conviction that our faith is neither piece-meal nor meant to be lived out on Easter and Christmas. Instead, the orthodox faith handed down to us over the past 2,000 years is, and always has been, meant to be applied on a personal level, to the family unit, and to the political-economy as a whole. It is, by its very nature, holistic.

Distributists, in common with most all groups or schools of thought ending with an -ism, tend to ride hobby horses. It has been brought to my attention that I tend to overemphasize foreign policy and international trade at the expense of many other pressing issues. For others it may be the Fed. For others it might be guilds and localism. Still for others it could be a mixture of all these things at the expense of the "other" topics typically getting little more than a passing glance. At any rate, most of us are guilty. And while the principle of the division of labor may be applicable here, at least to a certain extent, it should not be seen as a justification for our enthusiasm for certain teachings at the expense of others.

All of this poses a particularly sticky problem for those wishing to embrace and live out the fullness of Catholic social and moral teaching. Life isn't just about money, nor is it merely concerned with the ownership of land or family farms. Catholic Social Teaching, of which distributism most accurately reflects, deals with people as they are and life as it is. This requires the distributist to at bare minimum to familiarize himself with the entirety of Holy Mother Church's social, moral, and dogmatic teaching. As She is concerned with life in its entirety, so ought we. We must, therefore, become at least respectfully acquainted with those issues which may not be most appealing to our special interests. In short, it means becoming Catholic in the fullest sense, with the devout life as our aim, and the realization of Christ reign as Lord and King of Heaven and Earth as our primary objective.

Do I believe any of this to be possible? Apart from the grace of God and the works of Our Lady that result from a life of prayer, no. Do I believe that this revolution will happen overnight, or that progress will always be seen in leaps and bounds? No. The distributists of old, in harmony with the teachings of Mother Church, were as much realists as they were pragmatists. The theory of one brick or one step at a time, regardless how small or insignificant it may initially appear, is at the heart and soul of Catholic social reconstruction. But none of this can be done without a more comprehensive study and application of the kingdom principles laid out for us in the Holy Scripture, the writings of the saints, the papal encyclicals and the catechisms. Still, prayer is an absolute essential. Pray we can, and pray we must. For without prayer our most valiant efforts will be of little to no avail.

Gary DeMar was right. Historically, Catholics have been holistic in their application of their religion to each and every area of human existence. It is for this reason that the Catholic faith and Mother Church are seen as the one's who shaped and preserved Western civilization. So let us pray that we too can live up to that high calling and standard of excellence provided for us by the saints of old. Then, and only then, will we see the dominion of King Christ manifest within the world and the affairs of those God chose to create in His most sacred image.

NOTE: I am now on Twitter. and Plaxo


Chapter XVII: The Practice of Distributism

The next-to-last chapter. Comments welcome

Somewhere, the Sage hath said, Philosophy is easy; plumbing is hard. The Sage is correct; we should be suspicious of systems that exist only in the mind, but are never seen on the ground. It is only on the ground that they can be tested, and on those grounds alone we should take our stand. It is easy—too easy—to come up with abstract systems which are perfection itself; it is much harder to make them work. The problem with abstract theorizing is that creating theories is a selection process; one must decide what to leave in a what to take out. But one can never know that the right elements have been included without seeing how the system works in practice. Hence, practice alone is the only standard of judgment about social systems.

In Chapter II we noted the failure to Capitalism to live up to its own standards, to deliver what it promises. We noted that it always and everywhere ends up with a statist economy, ever more dependent on government interventions. But such a critique would ring hollow if Distributism did not have its own practice which the capitalist could examine in the same way we have examined capitalism. Fortunately, there are many long-standing examples of distributist economies and practices, and their problems and successes can be examined in as much detail as you like; we can see whether the theory describes an actual practice, and whether the practice works as advertised. Here I will mention only of the more prominent examples, and I invite the reader to examine them in greater detail for himself.

The Mondragón Cooperative Corporation (MCC). Recently, the workers in the Fagor Appliance Factory in Mondragón, Spain, received an 8% cut in pay.1⁠ This is not unusual in such hard economic times. What is unusual is that the workers voted themselves this pay cut. They could do this because the workers are also the owners of the firm. Fagor is part of the Mondragón Cooperative Corporation, a collection of cooperatives in Spain founded over 50 years ago.

The story of this remarkable company begins with a rather remarkable man, Fr. José Maria Arizmendiarrieta, who was assigned in 1941 to the village of Mondragón in the Basque region of Spain. The Basque region had been devastated by the Spanish Civil War (1936-1938); they had supported the losing side and had been singled out by Franco for reprisals. Large numbers of Basque were executed or imprisoned, and poverty and unemployment remained endemic until the 1950’s. In Fr. José’s words, “We lost the Civil War, and we became an occupied region.”2 However, the independent spirit of the Basques proved to be fertile ground for the ideas of Fr. José. He took on the project of alleviating the poverty of the region. For him, the solution lay in the pages of Rerum Novarum, Quadragesimo Anno, and the thinkers who had pondered the principles these encyclicals contained. Property, and its proper use, was central to his thought, as it was to Pope Leo and to Belloc and Chesterton. “Property,” Fr. José wrote, “is valued in so far as it serves as an efficient resource for building responsibility and efficiency in any vision of community life in a decentralized form.”3

Fr. José’s first step was the education of the people into the Distributist ideal. He became the counselor for the Church’s lay social and cultural arm, known as “Catholic Action,” and formed the Hezibide Elkartea, The League for Education and Culture, which established a training school for apprentices. He helped a group of these students become engineers, and later encouraged them to form a company of their own on cooperative lines. The engineers agreed to do so, but had no specific plan or product in mind. In order to establish a factory, it was necessary to obtain a license from the government, which was not always cooperative toward the Basques. But when a nearby stove factory went bankrupt, they raised $360,000 from the community to buy it (1955).4 This first of the co-operatives was named Ulgor, which was an acronym from the names of the five students of Fr. José’s who were the founders. It was first organized as a conventional business because there was no legal form for cooperatives, nor would there be until 1959.

From such humble beginnings, the cooperative movement has grown to an organization that employs over 100,000 people in Spain, has extensive international holdings, has, as of 2007, €33 billion in assets (approximately US$43 billion), and revenues of €17 billion. 80% of their Spanish workers are also owners, and the Cooperative is working to extend the cooperative ideal to their foreign subsidiaries.5⁠ 53% of the profits are placed in employee-owner accounts. The cooperatives engage in manufacturing of consumer and capital goods, construction, engineering, finance, and retailing. But aside from being a vast business and industrial enterprise, the corporation is also a social enterprise. It operates social insurance programs, training institutes, research centers, its own school system, and a university, and it does it all without government support.

Mondragón has a unique form of industrial organization. Each worker is a member of two organizations, the General Assembly and the Social Council. The first is the supreme governing body of the corporation, while the second functions in a manner analogous to a labor union. The General Assembly represents the workers as owners, while the Social Council represents the owners as workers. Voting in the General Assembly is on the basis of “one worker, one vote,” and since the corporation operates entirely form internal funds, there are no outside shareholders to outvote the workers in their own cooperatives. Moreover, it is impossible for the managers to form a separate class which lords it over both shareholders and workers and appropriates to itself the rewards that belong to both; the salaries of the highest-paid employee is limited to 8 times that of the lowest paid.

Mondragón has a 50 year history of growth that no capitalist organization can match. They have survived and grown in good times and bad. Their success proves that the capitalist model of production, which involves a separation between capital and labor, is not the only model and certainly not the most successful model. The great irony is that Mondragón exemplifies the libertarian ideal in a way that no libertarian system ever does. While the Austrian libertarians can never point to a working model of their system, the Distributists can point to a system that embodies all the objectives of a libertarian economy, but only by abandoning the radical individualism of the Austrians in favor of the principles of solidarity and subsidiarity.

The Cooperative Economy of Emilia-Romagna. Another large-scale example of Distributism in action occurs in the Emilia-Romagna, the area around Bologna, which is one of 20 administrative districts in Italy. This region has a 100 year history of cooperativism, but the coops were suppressed in the 1930's by the Fascists. After the war, with the region in ruins, the cooperative spirit was revived and has grown every since, until now there are about 8,000 coops. The are of every conceivable size and variety. The majority are small and medium size enterprises, and they work in every area of the economy: manufacturing, agriculture, finance, retailing, and social services.

The “Emilian Model” is quite different from that used in Mondragón. While the MCC uses a hierarchical model that resembles a multi-divisional corporation (presuming the divisions of a corporation were free to leave at any time) the Emilian model is one of networking among a large variety of independent firms. These networks are quite flexible, and may change from job to job, combining a high degree of integration for specific orders with a high degree of independence. The cooperation among the firms is institutionalized many in two organizations, ERVET (The Emilia-Romagna Development Agency) and the CNA (The National Confederation of Artisans).

ERVET provides a series of “real” service centers (as opposed to the “government” service centers) to businesses which provide business plan analysis, marketing, technology transfer, and other services. The centers are organized around various industries; CITER, for example, serves the fashion and textile industries, QUASCO serves construction, CEMOTOR serves earth-moving equipment, etc. CNA serves the small artigiani, the artisanal firms with fewer than 18 employees, and where the owner works within the firm, and adds financing, payroll, and similar services to the mix.

We discussed in Chapter 16 how the cooperatives work as an industrial model. Here let us only add that that the Emilian Model is based on the concept of reciprocity. Reciprocity revolves around the notion of bi-directional transfers; it is not so much a defined exchange relationship with a set price as it does an expectation that what one gets will be proportional to what one gives. The element of trust is very important, which lowers the transaction costs of contracts, lawyers, unlike modern corporations, where such expenses are a high proportion of the cost of doing business. But more than that, since reciprocity is the principle that normally obtains in healthy families and communities, the economic system reinforces both the family and civil society, rather than works against them.

Space does not permit me to explore the richness of the Emilian Model. I will simply note here some of its economic results. The cooperatives supply 35% of the GDP of the region, and wages are 50% higher than in the rest of Italy. The region's productivity and standard of living are among the highest in Europe. The entrepreneurial spirit is high, with over 8% of the workforce either self-employed or owning their own business. There are 90,000 manufacturing enterprises in the region, certainly one of the densest concentrations per capita in the world. Some have called the Emilian Model “molecular capitalism”; but whatever you call it, it is certainly competitive, if not outright superior, to corporate capitalism.

Taiwan and the “Land to the Tiller” Program. In 1949, the Chinese Nationalists were defeated by the Communists and fled to the island of Formosa, now called Taiwan. The Taiwan that greeted the refugees was a feudal backwater. Mostly it was a nation of small sharecroppers paying rents of 50-70% of the crop. Most of the land was owned by members of 20 families. Further, since the returns on land were so high, there was little interest in investing in industry. In addition, Taiwan had to absorb 2 million refugees from the mainland and bear the costs of defense. It was expected that Taiwan would soon fall to the mainland communists, as the Kuomintang had never proved very effective in controlling China. It was necessary to act quickly to reform Taiwan; it was the very failure to enact reforms which had made the Kuomintang unpopular in China and led to the victory of the Communists. They could not make the same mistake twice.

Effective control of the orient was in the hands of General Douglas MacArthur, who happened to be a distributist. He worked out a plan of reform for Korea, Japan, and Taiwan. Here we deal just with the reforms in Taiwan. The basis of the plan is that the farmers who actually worked the land would come into possession. The landowners were forced to sell the land to their tenants at a price equal to 2.5 times the average crop. The money to buy the land was given to the farmers, who repaid it over 10 years. Under this “land to the tiller” program, 432,000 families came into possession of their own land.

The results were dramatic. Farm production increased as farmers used more fertilizer, went to multiple cropping with as many as four crops/year and diversified production to higher value but more labor intensive crops. Production increased at an annual rate of 5.6% from 1953 thru 1970. The farmers suddenly had something they never had before: relatively large amounts of disposable income. Now they needed some place to spend it. Providing products to buy would require an expansion of industry on the island, if the country was not to be dependent on imports.

Most of the payments to the landowners was not in the form of cash, but in bonds. These bonds were negotiable industrial bonds which they could then invest in any light industry the former landowners chose.6 Indeed, there was nothing else they could do with the bonds; it was a case of “invest or die.” The strategy was twofold: get capital, in the form of land, into the hands of farmers; get capital, in the form of industrial investment, in the hands of entrepreneurs. Note that the strategy provided both goods to buy and purchasers to buy them; it was a binary strategy, giving equal weight to production and consumption. A tremendous number of capitalists were created overnight; the former landowners, who previously had no interest in manufacturing, were converted into instant urban capitalists and had to find places to invest the proceeds from the lands sales; the landless peasants became proprietors. By this method, the government provided support to Taiwan’s fledgling industrial base. But the fact that the actual companies to invest in were picked by the former landowners meant better investment decisions than if the government had tried to pick the winners itself. Industrial production expanded, giving the newly empowered peasants some place to spend the money buying locally produced goods.

We can see the Taiwanese experiment for the conjuring trick it was: the government sold land it didn’t own, bought with money it didn’t have and financed industries that didn’t exist; the government managed to both expand the consumer market and to provide the industrial production necessary to serve that market and serve it from local resources. There was no inflation because the money supply expanded at the same rate as production by a sort of automatic method. Redistribution allowed for expansion of the consumer base which allowed for expansion of the industrial base. It is not often in business and economics that one gets to see solutions which are elegant and beautiful, but certainly the land to the tiller program qualifies.

The results have been impressive, both in economic and social terms. Starting with crude products made in small workshops, Taiwan followed the industrial value-added food chain right shipbuilding, electronics, and every sort of industry. Taiwan has managed 50 years of high growth rates, increased equality, and low tax rates (comparatively). Unemployment was low to non-existent through most of Taiwan’s post war history. Before 2000, it rarely exceeded 3% and usually was less than 2%. Since 2000, the rate has risen as high as the low 5’s before dropping back to the 4% range as Taiwan struggles to adjust to outsourcing to mainland China. By human measures, Taiwan’s growth was also a great success. For example, the literacy rate increased from 45% in 1946 to 93% in 1989; life expectancy went from 59 years in 1952 to 74 years in 1989 while the per capita caloric intake went from 2,078 calories to 3,070 in the same period. Living space per person went 4.6 square meters to 23.8.7⁠ Further, Taiwan and the other “Asian Tigers” were able to achieve these successes despite having population densities among the highest in the world, a fact which contradicts the prevailing dogma that population density is an impediment to growth.

Employee Stock Ownership Plans (ESOP). ESOPs are a leveraged buy-out of a company in behalf of the employees. To simplify a complex process, a fund is set up to borrow the money with which to buy the company. As the loan is repaid from the profits of the firm, ownership is transferred to the employees, so that over time they become owners of their own firm. There are thousands of ESOPs in theory, however there are a much smaller number in practice because the law allows ESOPs to function as a tax dodge, so many are set up with no intention of transferrring real ownership. ENRON, for example, was an ESOP in name, but certainly not in fact; the owners had no intention of relinquishing their control.

However, where there is a sincere intention to transfer real ownership to the workers, ESOPs tend to outperform their “shareholder” corporate cousins. The sign of this sincere intention is not so much the formality of the ESOP, but the culture of “open management” that is established within the firm. An outstanding example of this is the Springfield Re-manufacturing Company (SRC), which was originally a division of International Harvester, but was purchased by a group of its employees, headed by Jack Stack. These men had an idea of business that was completely different from the remote shareholder model of the modern corporation.

Of course, Stack and his colleagues would offer ownership to their employees, but this was just a means to an end:

Part of the problem has been the tendency of companies to use stock merely as a form of compensation—a carrot to get people to work harder. In a company with a strong culture of ownership, stock is more than compensation. First and foremost, it's a vehicle for change....Equity is used to involve people in the process of making a difference in the world. Why? Because business is not an end in itself. It's a means to an end.8

What Stack set out to create was a community of entrepreneurs, rather than just a collection of people with jobs; indeed, SRC wanted to do away with “jobs” and the employee mentality altogether. But the primary problem is that people have been trained to see themselves in terms of jobs rather than entrepreneurs; they see themselves as merely performing a function for somebody else, usually somebody very remote. To accomplish this goal, to create this community, SRC used two means: education and equity-sharing.

To educate the members of the firm (it would be wrong to say “employees”), Stack invented a system of informal but continuous education he called The Great Game of Business. If the workers are going to take responsibility for the firm, they must know the rules of business, and the Great Game was the means of teaching them these rules, from the simplest to the most complex. As Stack evaluates the results of this “game,” he notes that “we’ve had dozens of employees rise from the shop floor…to top management positions, and they’re far better qualified than a lot of MBAs I see.”9⁠ The game required that the firm practice open-book management. If all members of the firm are to be responsible for the firm, then they all must have equal access to the books. Further, you cannot truly educate employees unless they can see how their actions affect the firm, and this is impossible without looking at the books. But the greatest benefit, as Jack Stack notes is that, “When you open your books—really open them—you also open your mind, and neither your mind nor your books will be closed again.”10

Continuous education and open-book management frees the firm from the constraints of the division of labor, which confines each worker to just one task, and from the quasi-militaristic “top-down” management, which confines responsibility to just one group. The results of this culture at SRC have been nothing short of phenomenal. In 20 years, they went from sales of $16 million to $185 million, with similar results for profit and shareholder equity. But it is in the area of shareholder equity that the firm really stands out, because all of the shares are owned by the workers. The company has 727 worker-owners, of whom only five were original members of the firm. The other 722 shareholders own 64% of the firm. This point is crucial, because “owning their work” must involve real ownership, and not just some psychic substitute. Equity-sharing defines the community, a community built on the premise that all the members of the community must share in the wealth that the community creates.

Other Examples. There are many other functioning examples of Distributism in action: micro-banking, mutual banks and insurance companies, buyers and producers cooperatives of every sort. This sample should be enough how distributism works in practice. Distributists are often accused of being “back to the land” romantics. The truth is otherwise. It is the capitalist who is the true romantic, because he believes in an ideal of which there is no functioning example; capitalism is never able to operate anywhere near its own principles; the mortality rates are simply too high. The Distributist, on the other hand, is a hard-headed realist, believing in what he can see, putting his faith in systems that work in practice. In reality, this idealistic capitalism always ends up relying on government power and money to rescue it from its own idealistic excesses; the distributist relies on functioning systems to deal with . Distributism goes from success to success; capitalism goes from bailout to bailout.

1“All in this together,”, March 26, 2009,

2R. Matthews, Jobs of Our Own: Building a Stakeholder Society (Sydney, Australia and West Wickham, UK: Comerford and Miller, 1999), 184

3Ibid., 185

4Ibid., 195

5Mondragón Cooperative Corporation, “2007 Annual Report,” December 31, 2007,

6J. Jacobs, Cities and the Wealth of Nations: Principles of Economic Life (New York: Random House, 1985), 100

7S.W.Y. Kuo, “Economic Development of the Republic of China on Taiwan,” in Agriculture on the Road to Industrialization (Baltimore: John Hopkins University Press, 1995), 334

8J. Stack, A Stake in the Outcome: Building a Culture of Ownership for the Long-Term Success of Your Business (New York: Doubleday, 2003), 5

9Ibid., 9

10Ibid., 9 Boldface in original.


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