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Source link: http://archive.mises.org/16853/moving-toward-a-free-market-but-never-getting-there/

Moving toward a Free Market but Never Getting There

May 9, 2011 by

The book is an admirable defense of distributism that exceeds anything written by G.K. Chesterton or Hilaire Belloc. Still, it’s wrong. FULL ARTICLE by Laurence M. Vance


Inquisitor May 9, 2011 at 9:05 am

“Wealth without work” is meaningless in a free market. Moreover, he is implicitly assuming that “work” is what should determine value, as opposed to contributing to the production of value for consumers and being reward to the degree that you contributed to that value production. So many economic fallacies in one book that appear in this review…

As for the just wage mallarky, he’d need to first justify why a wage needs to correspond to those conditions to begin with, aside from many of them being ENTIRELY subjective and arbitrary.

Dennis May 9, 2011 at 9:50 am

Mr. Médaille’s statement that “labor, not capital, is the true source of all economic values” indicates that he has not absorbed the basic teachings of the marginalist revolution in economics that took place in the 1870s and, in particular, the subjective value theory of Carl Menger. Mr. Médaille seems all too typical of those who proffer economic pronouncements in that in several areas he appears to lack a basic understanding of the truths of economic science.

Daniel May 9, 2011 at 11:53 am

Indeed. Someone should point out to him that labor without capital means digging dirt with hands and fingernails.

Richard May 9, 2011 at 12:06 pm

Are there any rebuttals to his argument that economic ups and downs have been less volatile since the rise of Keynesianism? There was an interesting graph in the book which seemed to prove his point.

Jordan Viray May 10, 2011 at 3:13 am

Yes, while the proportion of time spent in recession prior to Keynesian policies was greater than that of the period since then, booms and busts have only gotten worse since then. Not only that, economic growth has been lower overall since the rise of Keynesian policy. The difference is small but over time would have amounted to something around the equivalent of a $20+ trillion dollar US economy.

If eliminating the destruction part of the creative destruction cycle were of utmost importance, we’d still be living in caves.

JamesD May 9, 2011 at 12:27 pm

Perhaps the Free Market of the title refers to the market of the free (man) and not the Libertartians idea of “free market”.
I have not read the book (I think I really should it sounds very good), but I would guess that the definition of capitalism that John C. Médaille is using is the idea of corporation that is owned by stockholders who’s only participation in it’s industry is ownership of a piece of the corporation. The common theme being it is much better when the property owner is using his property for productive purposes vs having someone else use his property.
This makes a great deal of sense to me and would seem to lead to a much more sustainable system that would require much less “fixing” by government and more freedom.

Jordan Viray May 10, 2011 at 3:01 am

Nothing requires the government in order to “fix” it. Corporations have all sorts of issues, e.g. the agency problem and the fact that they are granted many of the rights granted to “persons”, but they do have one significant advantage:

They can raise large amounts of capital more easily than other legal business entities (which is why the government should not be involved in regulating business since that stifles the formation of other business forms which might do better in the market).

Extremely capital intensive processes are more easily realized in corporations.

“it is much better when the property owner is using his property for productive purposes vs having someone else use his property.”

Not really. If someone else can give me a better return on my savings than I could otherwise get through buying and personally using property for productive purposes, it would be much better to let that other person use my savings.

Samuel Wonacott May 9, 2011 at 12:29 pm

I was very unimpressed with this book. Beyond the economic fallacies which Mr. Vance adeptly points out, the author’s constant little jabs at Austrian economics came off as terribly obnoxious. He reminded me of the marginalized kid at school who would follow the “cool kids” around and take every opportunity he could to try and insult and embarrass them, only to come off sounding desperate and pathetic. It seemed like every other page the author would abruptly break from his main point in order to explain how Austrian economics didn’t explain x, even when it had absolutely nothing to do with Austrian economics in the first place.

It just came off as a desperate attempt by the author to prove his own intellectual capabilities by taking cheap shots at the Austrians. Two thumbs down.

Jordan Viray May 10, 2011 at 2:46 am

I had an extended discussion with Mr. Medaille over a year ago regarding distributism and economics. In order to defend his position, he ended up saying some rather fantastical things at various points.

He does not believe in economies of scale.

Try as I might to convince him otherwise, he did not think that economies of scale could outweigh dis-economies to the point where a firm might grow large. He clearly has the Distributist ideal in mind here since the existence of economies of scale would validate industry concentration and invalidate Distributist norms against such concentration.

He stated: “without the wages paid to gov’t workers, there would be insufficient purchasing power to clear the markets. This is the history of capitalism.”

Looking back, I should have just stopped the conversation right there. I thought such a ridiculous statement would be a one-time thing but I was wrong.

He stated: “The plain fact is: Bailouts are an intrinsic feature of capitalism. Always have been, always will be. Until it collapses, which is might soon.”

This, despite the fact that government intervention is anathema to the free market and that even when bailouts do occur, they are so rare that they cannot be considered an intrinsic feature to the system.

He stated: “However, if the wages are depressed so that the “increase” in productivity merely amounts to a re-pricing of labor, then it will have the opposite effect. The multiplier effect now has a negative sign and the decrease in demand spreads throughout the economy.”

Yup, the multiplier effect. Scratch a Distributist and you will find a Keynesian.

He stated “I am amazed that you don’t think a recession means unsold goods. I wonder what your definition could be? The primary unsold good is labor.”

When I pointed out that, by definition, a recession only requires a reduction in GDP rather than “unsold goods”, he did not concede the point.

He also stated “Demand for goods is the determinant of the demand for labor.”

When I pointed out that labor demand is comes from Marginal Revenue Product, he thought that was rubbish; I then asked him to generate the labor demand curve from a supply and demand schedule. When he was unable to, he still refused to concede the point.

I also visited his website, Distributist Review, hoping to get better answers from the various authors there regarding things like the “just wage”, interest, taxes, the role of the state etc. The answers I got reflect the sorry state of the theory.

Anonymous May 10, 2011 at 3:16 am

If he defines “usury” as lending for consumption, then I think he has a good point. Consumption lending takes advantage of people’s high time preferences by lending them money to purchase things they can’t afford. The widespread practice of consumption lending drives up prices and forces people to take out consumption loans if they want to purchase certain products. I certainly don’t think anybody should have a credit card to purchase things they can’t afford (a debit card linked to a checking account works just as well, without any debt) and I don’t think anybody should borrow money to purchase a car or a house or any other consumption good. In a society in which such lending is not widely used, home prices would fall to a reasonable level and we would finally have affordable housing for everybody (instead of having the government and the mortgage industry prop up home prices, while providing “public housing” to the poor people who can’t get a predatory loan to purchase a ridiculously overpriced house).

I don’t advocate banning credit for consumption goods, but I don’t think it is a good development. I think ending the Federal Reserve and returning to sound money (relatively static money supply) would mostly do away with consumption lending. A libertarian society where low time preferences are encouraged rather than high time preferences (this must inevitably happen, because most of what the State does raises time preferences) would fix the remainder of this problem. In the meantime, I think we need to permit generous bankruptcy laws in the interim because lending in a fiat money system is inherently fraudulent and predatory (most of all, we need generous bankruptcy laws to allow for defaulting on “student loans” which are mostly loans from the government, a criminal body that has no moral right to any money whatsoever, to naive youths whom the government has told all kinds of lies about the “value” of a college degree from one of the State’s colleges). There is a significant difference between defaulting in a libertarian society with sound money and defaulting in a statist society with fiat money where the State and its minions are doing all they can to encourage people to take out ill-advised loans.

As for “distributism,” I am not familiar with this school of economics, but it sounds mostly confused to me. All “3rd option” theories are inherently confused since, as Mises pointed out, Middle of the Road policies lead inevitably to socialism. The choice is always either the State or the Market. There is no 3rd option. Yes, the current mixed economy has real problems (including the problem of rampant consumption lending). The solution to these problems is to adopt a capitalist economy and a libertarian society.

Jordan Viray May 10, 2011 at 3:44 am

“I don’t think anybody should borrow money to purchase a car or a house or any other consumption good. In a society in which such lending is not widely used, home prices would fall”

And if two people voluntarily make an arrangement where one lends money to the other for a house, what would you do?

Nick May 10, 2011 at 5:49 pm

I can’t speak for Anonymous but it seems like he/she provided an answer to your question when he/she said…

I don’t advocate banning credit for consumption goods, but I don’t think it is a good development.

To me, that sounds like his/her answer to your question is “nothing”.

Jordan Viray May 10, 2011 at 6:19 pm

I gathered that much, but to be more specific, would he regulate such practices? If Anonymous takes a normative position, that is an important question to ask. From the tenor of his response, it seems as if he would.

Daniel May 10, 2011 at 10:33 am

If anything, this phenomenon of “usury” is actually a symptom of the unfree market in which we find ourselves in

JAlanKatz May 16, 2011 at 7:02 pm

I think Daniel has hit on the head the nail of the difficulty others seem to be having (to waterboard a metaphor.) There are plenty of things that I don’t like, would adamently refuse to regulate or ban, yet believe (for solid economic reasons) would not exist in a free market. What I want government to do about them is the same as what I want it to do about everything – get the hell out of the way.

Similarly, would our markets clear without the excess liquidity given by government, in part through wages? It’s a meaningless question. We want to answer Yes because we think it’s the best answer for our cause, but it isn’t. The answer is that the markets wouldn’t be the way they are without the government intervention – they’d be something else, which would clear.

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