Are you interested in learning about the principles of conservatism? While the API team often focuses on policy matters and current events, we always remember the principles on which our foundation is built. One of those principles is free markets, the idea that businesses and economies work better with little to no government interference.
In this book review, API policy fellow Andrew Sasser explores John C. Médaille’s analysis of free market economics and policy proposals addressing some of our nation’s current issues—including reducing the national debt. Sasser notes: “Medaille presents an alternative way of looking at many of the issues that affect the U.S., and through his policy proposals, provides a way forward for an economy that is not just free in name, but also in practice.”
A Review of: Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More
What makes an economy free? While the U.S. is often held up as the standard for a free market, the government has increasingly become involved in the economic sphere. This seeming contradiction is the subject of John C. Médaille’s Toward a Truly Free Market. In the book, Médaille, a businessman and instructor of theology at the University of Dallas, offers a thoughtful analysis of economics that is free from jargon, making Toward a Truly Free Market an approachable introduction to economic policy. Because he is not an economist by training, Médaille is able to be critical of contemporary economic thinking, which he believes is responsible for the continued expansion of government into the marketplace. Through his inclusion of innovative policy proposals, Médaille also offers an alternative economic vision that offers the chance for the free market to live up to its name.
Médaille’s alternative is distributism, an economic philosophy heavily influenced by the Social Teaching of the Catholic Church and the English writers G.K. Chesterton and Hilaire Belloc. Distributism favors a broad distribution of property as a means of enabling individuals to flourish. Distributism is often thought of as a “third way” approach to economics, an alternative to both capitalism and socialism that recognizes the importance of private property and individual initiative (through the distribution of property), while warning against the concentration of power in both the state and the marketplace. This “third way” approach is evident in Médaille’s critique of both the right and the left, which he believes share equal blame for the expansion of government into the economy.
Over the course of the 20th century, government consistently grew in size and scope regardless of party in power, a trend that has continued until today. Médaille argues that since the Great Depression, free market capitalism has been replaced by a form of state-managed capitalism, influenced by the thought of John Maynard Keynes, a British economist who believed that government could be used to control the fluctuations of the market and reduce the severity of recessions. The impact of Keynes’ policies can be seen in FDR’s New Deal, which greatly expanded government operation in the economy, as well as many later policy programs from the left.
Of course, this expansion of government into the economy was not without resistance. Médaille cites neoclassical (or Austrian school) economics, exemplified by Friedrich Hayek, as a prominent challenger to the Keynesian model. Recognizing the threat that larger government posed to liberty, neoclassical economists opposed government regulation of the marketplace. The neoclassical model was a primary influence on Ronald Reagan and subsequent conservatives, who often advocate for limited government and free markets.
Unfortunately, in Médaille’s analysis, neoclassical economics has failed, resulting in further expansion of government and a ballooning of the national debt. This is because while neoclassical economics is opposed to the policies of Keynesian economics, it shares many of the same assumptions about economic behavior.
Médaille believes that relying on these assumptions result in an incorrect picture of how the economy functions; and when policies are based on that picture, problems arise that government must solve. Médaille unpacks this claim in chapters three through six by examining the fundamental building blocks of both Keynesian and neoclassical economic theory: the supply and demand curves. While the mechanisms of supply and demand are often held as laws by economists, Médaille notes that human beings are not the purely rational, self-interest-seeking individuals they are often portrayed as. Instead, they have complex motivations and relationships that govern how they act. This means that people do not always follow the “rules” of economics, and that economic systems organized around those rules does not always accurately describe how certain parts of the economy function.
This is clear in Médaille’s discussion of the so-called “fictitious commodities” of money, labor, and land, which occupies chapters seven through nine. Money, labor, and land are “fictitious” because although they are often treated as normal commodities (objects that follow the laws of supply and demand), they operate in a much more distinctive manner. For example, unlike normal commodities, whose supply is determined by the interaction of price and demand, land has a fixed supply. Therefore, the relationship of the supply and demand of land operates very differently than regular commodities.
Treating these fictitious commodities like regular commodities causes distortions in the marketplace, such as speculation bubbles, which often results in government intervention (and thus expansion) to correct. These chapters offer crucial insights, as they demonstrate certain blind spots that exist in both Keynesian and neoclassical economic theory. The second half of the book is devoted to addressing these gaps.
In the books later chapters, Médaille presents several policy proposals for issues that the U.S. currently faces, including the national debt, healthcare, and taxes. It is in this section where Médaille’s distributist outlook takes a more concrete form, as the proposals Médaille offers are guided by three fundamental distributist principles: the common good, subsidiarity, and solidarity.
The idea of the common good is the promotion of values that are beneficial to all. Contemporary economic theories, which see society as a collection of individuals governed by their own self-interest, generally emphasizes policies that support individual choice and well-being. Emphasizing the common good recognizes that while individuals are important, no one person is self-sufficient; and he or she must rely on others at some point. Therefore, the government should take steps to promote programs that benefit society as a whole.
Subsidiarity is the principle that government should be managed at the most local level possible, resisting the centralizing tendency of both the market and the government by giving control to local authorities (and businesses) rather than a distant central government or large national/multi-national corporations.
Solidarity deals with how people relate to each other through their inter-personal relationships. Solidarity encourages the promotion of the fundamental building block of society, the family, as well as other civil organizations and groups (such as churches and clubs) that can mediate between the government and the individual.
To see how these principles impact policy decisions, it is helpful to look at one of Médaille’s proposed solutions: the ground rent tax, which is the subject of chapter 15. Currently, the U.S. relies on income taxes as its primary source of revenue, which results in a complicated and intrusive tax system. Efforts at reform made under President Reagan and subsequent presidents, known as “starving the beast,” attempted to resolve both the complexity of taxes and the national debt problem by lowering taxes and cutting the budget. Médaille writes that while lowering taxes did stimulate some economic growth, the policy also resulted in other, unintended effects.
With its primary revenue source reduced, instead of reducing spending, the federal government shifted to borrowing money to finance it, leading to the massive debt crisis that has continued to grow. While numerous tax and budgetary reforms have been offered to try and reduce the debt, most solutions involve little more than fiddling with the figures and percentages of the tax system, rather than proposing meaningful change. Médaille is critical of both the flat tax, which he argues would shift the tax burden from the rich to the poor, and the “fair tax,” which is susceptible to fraud.
A solution that Médaille does endorse is a ground rent tax, which would be a tax solely on the unimproved value of land. Unlike income taxes, which are really taxes on labor and capital, a ground rent tax would not be detrimental to investment or production, as it is a tax on landowners and rentiers, who do not contribute to the economy. Such a tax would encourage redistribution of land without government involvement and end harmful land speculation. In fact, a land tax would encourage owners to productively use or develop their land either for their own benefit or the benefit of their neighbors, which would promote solidarity and the common good. A ground rent tax would also be beneficial for communities, as these taxes could be collected on a local or state level rather than a federal one, helping to decentralize power in line with the principle of subsidiarity.
In Toward a Truly Free Market, John Médaille presents a unique and approachable analysis of the current economic landscape. By recognizing the shortfalls and blindspots of contemporary economic theory, Médaille presents an alternative way of looking at many of the issues that affect the U.S., and through his policy proposals, provides a way forward for an economy that is not just free in name, but also in practice.
John C. Medaille, Toward a Truly Free Market: A Distributist Perspective on the Role of Government, Taxes, Health Care, Deficits, and More ISI books, Wilmington, DE, 2010.