Every once in a while we get a question that we answer and then realize we’ve written a blog posting. On Friday of last week we had such a happy occurrence. As someone asked in a forum discussing “Thomist Philosophy,” that is, the philosophy of St. Thomas Aquinas,
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| Aquinas |
I
think that the Austrian theory of the business cycle is more correct than any
other, but I find much to like in the Distributist approach to economics in
general. Additionally, most Distributists are, at heart, Thomists. Aristotelian
or Aristotelian-leaning Austrians tend to incorporate assumptions or ideas from
Suarez. I don’t like Suarez.
Now, one thing that we liked
is the fact that the individual spelled all his words correctly. The other thing we liked is that this sort of
thing is a “softball pitch.” Not real
softball, of course. Real softball pitchers
are worse than those in hardball. They are out
for blood, and they often get it.
Anyway, we started out by
commenting that both Austrians and distributists are locked into the Currency
School, as Ludwig von Mises made no bones about, but which most distributists
simply do not understand. (That’s not a slam, just fact.) And the difference? In simplest terms, the Currency Principle is
that money is a commodity, and the amount of money determines the “velocity” of
money (the average number of times a unit of currency is spent in a year), the
price level, and the number of transactions.
The Banking Principle is that money is the medium of exchange, and that the
velocity of money, the price level, and the number of transactions determines
the quantity of money.
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| J,B. Say |
That being said, the Austrian
emphasis on an asset-backed currency is, per se, the strongest and most
logical of all the mainstream schools of economics. As Currency School economists, however, they
assume as a given that only existing wealth in the possession of the issuer can
back the currency, and don’t recognize anything except currency and currency
substitutes as money. In financial terms, the Austrians recognize only mortgage
type securities, not bills of exchange, i.e., only past savings not future
savings.
The modern business cycle is
a Currency Principle phenomenon, so it makes sense that the Austrians would
have a better handle on it, since they are the most consistent of the Currency
School economists. The business cycle has its roots in the “violation” of Say’s
Law of Markets. It is caused by the
failure to link the money supply directly to the amount of marketable goods and
services in the economy, and to have the means of production broadly owned. The combination of these two factors is
catastrophic, as the panics and Great Depressions since 1825 have demonstrated.
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| J.M. Keynes |
By recognizing that a bill of
exchange can back the money supply — or be a part of it, if “accepted” (that is why
such instruments are called “bankers” or “trade” acceptances) — an Austrian
could easily be brought to recognize future savings as legitimate, and lead
naturally into the need for an “elastic” asset-backed reserve currency; right
now any change in the money supply to an Austrian is automatically
inflation or deflation.
To confuse matters, to a
Keynesian, inflation can’t exist until full employment is reached; rises in the
price level are due to “other factors.”
Yes, in more rational terms, a rise in the price level IS inflation, but
that did not fit Keynes’s theories. He
needed to account for a rise in the price level before reaching full
employment, so he decided to redefine inflation!
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| G.K. Chesterton |
Distributism is much more
flexible than Austrian economics, since it is a concept rather than a theory. G.K.
Chesterton was careful to keep his definition of distributism minimal (possibly
to piss off G.B. Shaw): a policy of widely distributed ownership with a
preference for small, family owned farms and businesses. When enterprises must
be large, they should be owned on shares by the workers.
That’s it. All the “small is
beautiful” rhetoric and modernism, socialism, and the New Age, are accretions
that Chesterton and Hilaire Belloc rejected. Unfortunately, Belloc ultimately cut the ground out from
under his own feet by trying to make specific recommendations. It was fine rhetoric, but lousy economics and
finance.
Because of its flexibility,
however, distributism can be made viable by adding a future savings component
that doesn’t rely on ownership of existing wealth to finance new capital
formation, and by recognizing that widespread ownership of large enterprises is
as legitimate as ownership of small enterprises. Latter day distributists just need
to shuck their dependence on Fabian socialists and socialism, and its
offshoots, especially R.H. Tawney, Msgr. John A. Ryan, Henry George, and so on,
social credit, guild socialism, etc., etc., and now “democratic
socialism.”
#30#