Progressive Libertarianism
Part 3: Libertarianism, Distributism, & Welfare
The Overlapping Consensus
Socialists and libertarians both integrated key Burkean conservative insights into their philosophies around the turn of the 19th Century. The revolutionary idea of tearing the system down to build something completely new from scratch fell into disfavor. Libertarians started to shy away from anarchism and socialists started to shy away from revolutionary ideologies. The new libertarianism was “neo-liberal” — embracing the ideas of liberal democracy and seeking to move in a more “liberal” direction within the context of republican systems of government while rejecting market fundamentalism. Socialists embraced the idea of democratic socialism (or social democracy) and the notion that gradual reform through the democratic system was the best route to a better society. Both the libertarians and the socialists ended up becoming staunch proponents of the philosophy of republicanism.
Furthermore, the “neo-liberalism” of libertarians like F. A. Hayek and Milton Friedman entailed a recognition that markets are not perfect and that sometimes you do need the government to step in for the purpose of welfare provision. The social democrats too started to move away from the idea of nationalizing industry and centrally planning the economy and towards the idea of promoting a universalist welfare system within the context of a mixed economy. In fact, the liberal-socialist economist James Meade and the libertarian economist Milton Friedman both supported the same minimum income guarantee proposal — the Negative Income Tax scheme of Juliet Rhys-Williams. Eduard Bernstein, Anthony Crosland, and James Meade started popularizing the idea that a widespread distribution of private ownership might be an acceptable alternative to nationalization, at least in many cases. This idea of widespread distribution of private ownership (distributism or property-owning democracy) had actually originated on the right in the early 20th Century and was later adopted by center-left political liberals and social democrats like John Rawls and James Meade. The “neo-liberal” libertarians and the social democrats agreed in rejecting the doctrine of laissez-faire and recognizing that the government needs to take action in order to make markets work beneficially.
It seemed that the intellectual world had reached an overlapping consensus. The right and the left both came to agree on a number of points: (1) that representative democracy with universal suffrage is the best possible form of government, (2) that laissez-faire doesn’t work and government needs to impose certain rules and regulation in order for markets to work optimally, and (3) that the government ought to provide for the poor and ensure universal access to healthcare.
The Hayekian-Friedmanite Basic Structure
Hayek was not a policy wonk as much as a philosopher. He argued that there ought to be a minimum income guarantee and some sort of social insurance scheme to guarantee access to affordable healthcare. The task of laying out a specific policy proposal was left up to Milton Friedman. For the minimum income guarantee, Friedman settled upon the Negative Income Tax proposal of Juliet Rhys-Williams, the same plan that was supported by prominent liberal-socialists like James Meade. With regard to healthcare reform, Friedman proposed Universal Catastrophic Coverage. Together, these two programs would provide a social safety net — or, more accurately, a floor below which nobody could fall. Combined with liberal democracy (representative government and a free market), this would create a basic structure of society that would maximize liberty and justice for all. Let’s get into the details here and see just how generous these proposals actually were.
We won’t go too in-depth on the details of how the Negative Income Tax scheme works, as I have covered that elsewhere. Suffice it to say that the Negative Income Tax scheme puts a negative tax rate on lower incomes so that the poor receive a subsidy or transfer instead of owing taxes. The result is a minimum income guarantee. Friedman proposed a minimum income guarantee of $125 per month or $1,500 per year. At first glance, Friedman’s minimum income proposal seems quite small. However, you have to take into consideration that Friedman made his proposal over half a century ago. In 1970, the median cost of rent (with utilities included!) was $108 per month and poorer folks could find a place to rent for closer to $50 per month. If we split the difference between the median rent and the lower rents, we can assume that a representtaive person receiving the minimum income guarantee payments would have been paying $80 per month on rent and utilities. For an individual living alone, this would have left $45 per month after rent and utilities — this would be about $311 in today’s money. In the case of a couple living together, they would have had $170 left over after rent and utilities — this would be $1,175 in today’s money. When you adjust for inflation and take into consideration the lower cost of housing at the time, Friedman’s plan really does look radically progressive.
Let’s compare this to Andrew Yang’s $1,000 per month universal basic income proposal. Today, the national average rent is $1,468 per month and the city with the lowest average rent comes in at $665 per month. If we split the difference between the national average and the lowest average, we can assume that a representative person who is living on nothing but the basic income would be spending about $1,000 per month on rent. Our representative person in this example would use their entire basic income on rent and be left with nothing left over. So, Friedman’s minimum income scheme is technically more generous than Yang’s universal basic income. Of course, people who are poor and likely to be living on nothing but the basic income would likely rent cheaper places, so you could expect Yang’s scheme to work out better for most people than it does for our representative example here. But, it should be noted, Friedman’s scheme would work out even better for those people too.
Friedman supported this Negative Income Tax scheme in general, even if the rest of the tax system remains as is, but he also wanted to simplify the tax system. His ideal proposal was to do this Negative Income Tax scheme and replace the progressive income tax scheme, which has higher marginal rates on higher income brackets, with a simplified scheme with one flat income tax rate on all income above a given threshold. The tax system would be greatly simplified and the negative rate on lower incomes would render the tax system progressive overall, in spite of the flat rate above the taxable threshold.
One thing about Friedman’s proposal that is seldom discussed is that it is nearly optimal from a redistribution standpoint if your goal is to create a more egalitarian distribution of incomes. There’s a famous economics paper by Corina Boar and Virgiliu Midrigan that attempts to determine “the most efficient means of redistribution in an unequal economy.” Boar and Midrigan concluded that a flat income tax scheme with a system of lump-sum transfers to the poor would be nearly optimal if your goal is an egalitarian redistribution of incomes. Friedman, of course, was not concerned with ensuring equality as such but rather wanted to eliminate poverty and make sure that no one fell through the cracks. Nevertheless, the particular tax reform that he proposed would quickly create an egalitarian society if it were ever implemented.
Moving beyond the minimum income guarantee, let’s examine the particular healthcare reform proposal that Friedman advocated — Universal Catastrophic Coverage.
“A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance (i.e., a major medical policy with a high deductible). Second, it would end tax exemption of employer-provided medical care. And, third, it would remove the restrictive regulations that are now imposed on medical insurance — hard to justify with universal catastrophic insurance.
“This reform would solve the problem of the currently medically uninsured, eliminate most of the bureaucratic structure, free medical practitioners from an increasingly heavy burden of paperwork and regulation, and lead many employers and employees to convert employer-provided medical care into a higher cash wage. The taxpayer would save money because total government costs would plummet. The family would be relieved of one of its major concerns — the possibility of being impoverished by a major medical catastrophe — and most could readily finance the remaining medical costs.” — Milton Friedman (How to Cure Health Care)
Most schemes for Universal Catastrophic Coverage entail sliding-scale deductibles. A person with no income would have a deductible of zero. The deductible would increase based on your income. This is because catastrophic coverage is only supposed to cover truly unaffordable expenses, not routine checkups and regular visits. Whether something is affordable or not is a relative matter and will be dependent on one’s income.
“Universal catastrophic coverage is not meant to cover every healthcare need of every citizen. Instead, UCC would offer protection from those relatively rare but ruinous healthcare expenses that are truly unaffordable….
“Here is how UCC might work, as outlined in National Affairs by Kip Hagopian and Dana Goldman. Their version of the policy would scale each family’s deductible according to household income. The exact parameters would be subject to negotiation, but to use some simplified numbers, the deductible might be set equal to 10 percent of the amount by which a household’s income exceeds the Medicaid eligibility level, now about $40,000 for a family of four. Under that formula, a middle-class family earning $85,000 a year would face a deductible of $4,500 per family member, perhaps capped at twice that amount for households of more than two people. Following the same formula, the deductible for a household with $1 million of income would be $96,000.
“The cost of the catastrophic policy would be covered by the government, either directly or through a refundable tax credit. The policies themselves could, as in the Swiss model, be offered by private insurers, subject to clear standards for pricing and coverage. Alternatively, they could take the form of a public option, for example, the right to buy into a high-deductible version of Medicare….
“Although UCC itself would be a federal program, the supplemental insurance market would continue to be regulated by the states to meet their particular needs.
“Very likely, many middle-class families would forego supplemental insurance and cover all of their routine health care costs from their regular household budgets, the way they now pay for repairs to their homes or cars. Doing so would be easier still if they took advantage of tax-deductible health savings accounts — a mechanism that is already on the books, and could be expanded as part of reform legislation.” — Ed Dolan, How the GOP Can Win on Healthcare
The Universal Catastrophic Coverage plan ends up being much more fiscally conservative than a plan like single-payer or Medicare-for-All since it does not cover all routine costs.
“Fiscal conservatives would, quite properly, want to know whether UCC would be affordable not only to families, but to the federal budget. As it turns out, the numbers don’t look all that bad. Because UCC leaves responsibility for routine care with individual families, in line with their ability to pay, it would be far less expensive than a system that offered first-dollar coverage to everyone. Hagopian and Goldman estimate that their version of UCC would cost less than half as much as the projected costs of the ACA.
“The impact on the federal budget would be further moderated if the tax deduction for employer-sponsored insurance (ESI) were phased out as UCC came online. Tax expenditures for ESI currently cost the budget an estimated $235 billion per year, an amount that rises to some $250 billion if related deductions for the self-employed are included.
“Healthcare policy aside, many conservatives object to employer-sponsored insurance in part because of the disproportionately large administrative burdens it imposes on small businesses, which, unlike large corporations, cannot afford to self-insure. Furthermore, ESI undermines the flexibility of the labor market through the phenomenon of job lock. Workers who have jobs with good insurance fear to leave them for jobs elsewhere that would make better use of their skills but might not have the same health benefits. Quitting a job with ESI to work as an independent contractor or start a small business of one’s own is even riskier.”(ibid.)
While this Universal Catastrophic Coverage proposal is much more fiscally conservative than ObamaCare and nigh infinitely more fiscally conservative than Medicare-for-All, I also want to make the case that it is more progressive than Bernie Sander’s Medicare-for-All plan. Under Bernie’s plan, 20% of the program’s costs would be covered by premiums and the billionaires would receive just as much in benefits as a person with no income. Bernie’s plan isn’t terrible, as the premiums are income-based and the poorest people would pay nothing. However, the Universal Catastrophic Coverage scheme is more progressive in terms of the ratio of benefits-to-taxes at the individual level because a person with zero income gets all of their healthcare costs covered while paying nothing whereas a billionaire would end up paying in a lot but would usually not receive any government assistance through the program. There are, of course, good arguments to be made for a more universalist approach like Medicare-for-All where everyone pays and everyone receives benefits, so a rational person could conclude that Bernie’s plan is actually better. I only mean to emphasize that the Universal Catastrophic Coverage scheme is more progressive than other plans, even if other plans may be preferable for entirely different reasons.
62% of all personal bankruptcies are related to medical debt, so Universal Catastrophic Coverage would actually prevent most personal bankruptcies. Couple this with the Negative Income Tax scheme that would eliminate the vast disparities in wealth and income throughout the economic system as a whole, and it becomes quite apparent that Friedman’s reform proposals would create a society that looks quite utopian and egalitarian even in comparison to the proposals of some radical social democrats. Though Hayek and Friedman did not have the creation of an egalitarian society as their goal, that does seem to be what would result from the actual policy recommendations that they put forth. It’s also worth pointing out that the Hayek-Friedman approach would virtually eliminate poverty whereas the “progressive” proposals of Modern Money Theorists and social democrats like Bernie Sanders would not actually eliminate poverty.
Distributism & Property-Owning Democracy
“Do you mean the property of petty artisan and of the small peasant, a form of property that preceded the bourgeois form? There is no need to abolish that; the development of industry has to a great extent already destroyed it, and is still destroying it daily.” — Karl Marx (The Communist Manifesto)
In 1923, a 43-year-old conservative named Noel Skelton wrote a series of tracts on “constructive conservatism,” arguing that conservatives needed to focus more on standing behind their principles and trying to play a constructive role in politics rather than simply impeding social progress. In the realm of politics, he argued, one must be willing to make compromises and not merely insist on maintaining the status quo. As far as Skelton was concerned, liberalism had won — representative democracy with universal suffrage alongside a free-market system was now firmly established. Liberalism, as an independent philosophy, became irrelevant. You now had universal suffrage and universal education — an educated populace with voting rights. People were eager to engage in politics, listen to political deliberations, and learn about political matters. Socialism provided people with a view of life and was becoming quite popular as the Christian worldview declined in popularity as a result of science having discredited many of the Bible’s claims. Skelton contended that the statesman needed to be a public intellectual and that conservative politicians ought to use their platform to espouse and popularize a conservative worldview. But, most of all, conservatism needed to become a vector for change.
“For what are the principles of Conservatism, these leading ideas and ideals which are the essence of its view of life?
“The first of these is the stability of the social structure. A stable condition of society is the main pre-occupation of Conservatism. This is the real clue to its whole political philosophy. If change has been resisted, it has been because the Conservative has feared that it would produce confusion and instability. When it has been clear that only by change can stability be re-established, no party has been more fearless in making the most drastic changes….
“But stability is not stagnation. Stability is as much the condition of steady progress for a society as it is for a ship. Stagnation, since life is movement, means necessarily that atrophy is at work; that tissues are dying which should be living; that dead matter is accumulating which must, by more or less violent means, be cast out. To confuse stability with stagnation is, however, from the nature of things, a special danger for Conservatism, for it is the natural defect of its virtue.” — Noel Skelton (Constructive Conservatism)
The Marxist looked to push capitalism to its logical conclusion. The capitalist mode of production leads to property being concentrated into the hands of the few. The workers do not generally own the factory where they work. The Marxists liked this centralization of ownership because it’s much easier for the government to take over an industry if it’s already centralized. Private property remained the norm but ownership became less common. All the property was privately owned but the average person owned no property. If the conservative wants to oppose socialism, according to Skelton, he needs to kill the root. The tendency towards centralization of industry and concentration of ownership was the road that leads to socialism. The solution, in Skelton’s estimation, was to preserve or restore the “property-owning democracy” that existed prior to the centralizing forces of the Industrial Revolution eroding away the institution of private property. “For the mass of the people — those who mainly live by the wages of industry — political status and educational status have outstripped economic status. The structure has become lopsided. It is therefore unstable. Until our educated and politically minded democracy has become predominantly a property-owning democracy, neither the national equilibrium nor the balance of the life of the individual will be restored.”(ibid.)
The term property-owning democracy is meant as a direct rebuttal to social democracy, the old term for socialism. Property-owning democracy is an economic system with widespread distribution of private ownership — a system where most people privately own some land or means of production. In short, it is a form of liberal democracy wherein there is universal suffrage and the mass of voting citizens are property owners. There was a time when very many people worked for themselves. The blacksmith, the farmer, the shoemaker, the butcher, et al. were independent and owned their own land, their own shops, and lived by their own rules. However, government eventually intervened and destroyed the commons, creating legal titles to land and conferring artificial property rights to landlords. That natural system of property based upon occupancy and use was replaced by a legal system in which ownership was conferred not by natural law or custom but by the will of the sovereign. This new system was called Fuedalism. Feudalism deprived most people of private ownership and everyone ended up being forced to pay tribute to the feudal lords in order to use the same land and resources that was previously theirs to freely use as they pleased. The lords were able to save up big stocks of capital which their descendants would use to start and command centralized industrial enterprises during the Industrial Revolution. This new system wherein those who happened to possess large stocks of capital ended up owning and controlling access to the land and means of production has become known as “capitalism.” Capitalism led to the centralization of industry and the majority of the populace became wage-earners, people entirely dependent upon capitalists for their sustenance. The average man now owned no land and no capital and simply had to go work for a capitalistic enterprise in order to survive.
But Skelton notes that the wage-slave had a desire to become a property owner once more. The average worker still had a “determination to become a property owner” because “the wage-earner appreciates the security and economic freedom which the possession of private property gives.”(ibid.) What the workers wanted was ownership. And socialism was growing in popularity precisely because it seemed to promise just that. However, Skelton argues the socialism’s promise of ownership was a hoax. People were wanting private property of their own, ownership of land and enterprises, but socialism was capable only of delivering State-ownership of land and industry.
“[T]he Socialist has seized the opportunity thus given him to pervert the impulse… he declares, that is, that ownership by the State is ownership by the people, implying that that means a property-owning democracy. In fact, of course, it does not. What everybody owns, nobody owns; and far from expressing the wage-earner’s ideal, Socialism makes it unattainable, while communal ownership, when obtained, neither interests nor influences a single human being.”(ibid.)
The conservative, according to Skelton, has two principle values beyond maintaining stability and security — encouraging the development of moral character amongst citizens and promoting limited government. The conservative, Skelton says, is a proponent of limited government and wants to limit “the action of the State to ‘helping the individual to help himself.’”(ibid.)
“The beneficent effect upon human character both of the effort to acquire private property and of the opportunity, after it has been acquired, for its wise or foolish use, can hardly be over-estimated. For what is the effect of property, its proverbial ‘magic’? In the getting, the exercise of thrift, of control, of all the qualities which ‘the rolling-stone’ knows nothing of; in its use, an increased sense of responsibility, a wider economic outlook, a practical medium for the expression of moral and intellectual qualities. It is for Conservatism to see to it that this pathway to the development of character is opened wide to the people; and to expound to the nation — what no one else apparently dares or cares to — the vital inter-relation between character and private possessions. Equally clear, equally fundamental, is the relation between the possession of private property by the people and the stability of the State. This, too, has been left for the Conservative to expound. So deeply, indeed, has Conservatism felt the importance of this relation that in the past it was wont to maintain that only those who possessed private property should exercise political functions. That doctrine has now this new and pregnant application — that since, to-day, practically all citizens have political rights, all should possess something of their own. Mocked and jeered at in the past as ‘the Party of Property,’ it is precisely as such, now that the wheel has turned full circle, that Conservatism in the new era holds in its keeping the key to the problem.
“To make democracy stable and four-square; to give the wage-earner property and status; to bridge the gulf set between Labour and Capital; to present a view of life in which private property, instead of being reckoned, as the Socialist reckons it, a shameful thing, shall be recognized to be an essential vehicle for the moral and economic progress of the individual; these are the tasks to which the opportunity, the problem, and their own principles alike call Conservatism to perform in the new era.”(ibid.)
To bring about this property-owning democracy, where ownership is the norm rather than the exception, Skelton proposes the following: “(1) for the wage-earner, whether in factory or in field, industrial co-partnery, or its halfway house, profit-sharing; (2) for the agriculturist, who seeks to become completely his own master, small ownership; (3) for the rural world, as a whole, agricultural co-operation; (4) for the community, to secure it against sudden assault, the Referendum.”(ibid.) Skelton does look at small ownership as one option but he doesn’t want to go back to the pre-Industrial era. For large industry, he proposes giving workers a share of ownership in the company for which they work. By giving workers a share of ownership (co-partnery), “the workers become capitalists.” By turning workers into capitalists, the instability created by the class conflict between labor and capital will fade away. “To the community it brings all the results that flow from a real identification of interest between Capital and Labour — reduction of the number of strikes,” etc. (ibid.)
The stability of all successful civilizations, according to Skelton, was a direct result of the fact that citizens owned property. Hayek echoes Skelton when, in The Fatal Conceit, he asserts that “several property” and trade are the basis of mass society and, elsewhere, when he asserts that property and economic freedom build moral character.
“Private property is, so far as history gives us a clue, the foundation and sine qua non of all progressive civilizations. It follows that the extent of the distribution of private property is the measure, on its economic side, of a civilization’s stability and success. Similarly, character and a sense of responsibility are rooted in a man’s possession of ‘something of his own’. A democracy without scope for the development of economic character and responsibility, cut off from private ownership, cannot be expected to understand the material foundations of civilization. Moreover, it cannot stand. Unless, then, by such means as profit-sharing — and industrial co-partnery and the wider distribution of the small ownership of land the Unionist Party can make property-owners of the present wage-earning classes, no hope can be given to the mass of the people that their economic status can be brought abreast of their political and their educational status. It will perhaps be a slow process; but great parties must take a long view, and if an objective is sufficiently important must not fear the toils of the march.
“A property-owning democracy is, at any rate, a truly Conservative objective, and the Conservative Party will never fight for any policy out of harmony with its foundation principles.”(ibid.)
Following in Skelton’s footsteps, Hilaire Belloc and G. K. Chesterton would go on to popularize this idea of property-owning democracy or widespread private ownership under the banner of distributism. Like Noel Skelton, Hilaire Belloc and G. K. Chesterton were traditional conservatives but they were also heavily influenced by Catholic social teachings. They contended that distributism (property-owning democracy) is the opposite of socialism (social democracy). Socialism is where private property is abolished, distributism is where private ownership is the norm. In their estimation, capitalism was a road to socialism. Chesterton said, “The problem with capitalism is not too many capitalists, but too few.” Capitalism and the capitalist mode of production created a tendency for workers to be stripped of ownership. The goal of distributism was the restoration of property.
In his book An Essay on the Restoration of Property, Belloc argues that government needs to take an active role in order to restore the institution of property that was quickly withering away. Two of his major policy proposals were (1) the use of differential taxation to encourage widespread distribution of ownership and (2) the restoration of the guild system. Belloc makes the case that you could discourage the growth of large corporations by taxing expansion. As you open more locations in a chain store, have the taxes gradually increase so that expansion beyond a certain point is prohibitively expensive. This would lead to more small competitors in the marketplace rather than allowing the market to be dominated by a few large corporations. You could also tax the sale of land so that it costs more to buy additional land if you already own a substantial amount and would cost less to buy it if you don’t already own land. Another idea for fostering more widespread ownership is the implementation of a land value tax, which is recommended by the modern distributist philosopher John Médaille. Furthermore, Belloc observes that the Medieval guild system was a mechanism for protecting small owners from centralization. The guilds were voluntary associations of individual craftsmen and artisans. One would enter the guild as an apprentice and be taught the tricks of the trade. Once one mastered the trade, one would become a full member of the guild and would start paying dues. The guild, in turn, set the funds aside in a mutual insurance fund.
“The wealthier guilds had large coffers that acted as a type of insurance fund. If a master’s practice burned down — a common occurrence in the largely wooden cities of medieval Europe — the guild would rebuild it using money from its own funds. If a master was robbed, the guild would cover their obligations until money started to flow in again. If a master was suddenly disabled or killed, the guild would support them or their surviving family.
“This safety net encouraged more people to leave farming to take up trades. As a result, the amount of goods available for trade increased, as did the range of goods and services.” — Andrew Beattie (The History of Insurance)
The guilds were voluntary associations that provided training and security to individual craftsmen, artisans, and tradesmen. The guild system was an integral institution for the development of robust free markets under mercantilism. The guilds disappeared from Europe largely as a result of government policy. On the one hand, the “enclosures” stole land from the masses and gave ownership exclusively to the “lords” — individuals who were favored by the king for some reason, often because they were military leaders. This deprived many people of ownership and made it more difficult to sustain the guild system which relied on the free association of small owners. Furthermore, sentiments among intellectuals and policymakers moved towards “laissez-faire” and the guilds were perceived as a threat to free competition since their members would often agree upon standard wages and prices in their industry, at least at the local level. The guild fell out of favor with the courts and the courts stopped upholding their charters and enforcing their rules, which were really just a contractual agreement between the group and its members. The guilds had served as institutions for education and social insurance. In the absence of the guilds, governments ended up having to take over the roles that these voluntary institutions once held.
The idea of distributism or property-owning democracy, though it was originally a conservative idea, ended up being embraced by proponents of political liberalism and by social democrats such as John Rawls and James Meade. Their integration of the idea of widespread ownership with the notion of the welfare state looked, in many respects, similar to the proposals of “neo-liberal” libertarians like Hayek and Friedman. On the right, neoconservatives like Irving Kristol even integrated the social insurance welfare state model of “neo-liberalism” with the idea of “property-owning democracy,” though they seldom faught hard for policies conducive to either in practice.
Libertarian Distributism?
The first thing I would like to note about property-owning democracy (distributism) and the libertarian tradition is that, as I have previously mentioned, the ideal social safety net proposed by Hayek and Friedman would actually be optimally redistributive and, consequently, would lead to a widespread distribution of ownership as a result. Hayek and Friedman’s “neo-liberal” welfare state model would quickly create an extremely egalitarian society, which would allow people to save up enough of their income in order to purchase real property. It would create the perfect conditions for people to start engaging in more distributist arrangements like running a small homestead farm, running a small shop, being an independent craftsman or artisan, or even getting together with other people in order to form a co-operative for industrial purposes. It may also be of interest to mention that Irving Kristol, the father of neoconservatism, believed that a “neo-liberal” approach like Friedman’s would foster property-owning democracy.
The second point I’d like to make is that there is a strong dialectical libertarian case that can be made for supporting the distributist agenda. The property-owning democracy that distributists seek to restore is essentially the truly free market that government suppressed in the name of laissez-faire. It was believed that guilds and unions were antagonistic to free competition, so such voluntary institutions were actively suppressed by liberal governments. Guilds and fraternal societies were, at one point, pillars of western civilization. The guilds trained craftsmen and tradesmen, encouraging specialization and contributing to the division of labor that was so central to the development of the mercantilist market system. The guilds provided education for children starting around the age of 12, teaching them the tricks of the trade as apprentices, usually also providing them with food and shelter during the duration of their education. The guilds were also trusted social institutions that would provide certification to their members. In the absence of government-granted licenses, guilds would grant certification to their members and vouch for the level of their professional education and the quality of their work. Private individuals would then only trust the work of craftsmen and tradesmen that were certified by a guild. The guild also would provide, as I mentioned, insurance to its members. If a guildsman’s shop burned down, the guild would pay to rebuild. If an accident made a guildsman unable to work, the guild would subsidize him until he recovered. If a guildsman died, the guild would take care of his family. When the guilds were abolished in the name of “progress,” it became necessary for the government to step in and take over the functions of the guilds. The guilds were, in a certain sense, the free market’s welfare system. In the absence of the guild system, it became more common for the government to step in to provide education, social insurance, and licensure for trades. If modern libertarians really want to get the government out of the business of providing these necessary functions, they need to focus on restoring the various voluntary institutions that served these functions under the market system prior to the Industrial Revolution and the rise of modern “capitalism.”
Following the decline of the guilds, we saw a proliferation of fraternal societies that provided insurance to their members. Some of these orders, like the Freemasons, were actually the watered-down remnants of medieval guilds. The fraternal orders no longer, however, provided training and certification for tradesmen. Many fraternal societies had a lodge practice, a form of direct primary care in which the lodge or local chapter of the order would work for a set salary and all members of the society could get basic healthcare at an affordable price. In the early 1900s, a member of the Fraternal Order of Eagles or any of their immediate family members could get basic healthcare, including minor surgeries, for just $1 per year (roughly $30 per year in today’s money). “By conservative estimates eighteen million American men and women were members [of such a fraternal order] in 1920…three out of every ten adult males.”(David Beito, Lodge Doctors and the Poor) But many people feared the growth of these voluntary organizations. Roosevelt noted that fraternal orders were often linked to specific ethnic groups and, therefore, he contended, undermined American solidarity and nationalism, so he attempted to crush the fraternal orders and implement a system of social insurance that would serve some of their economics functions without preserving the distinct cultures and ethnic identities of immigrants. The American Medical Association (AMA) was founded in the mid-1800s and incorporated around the turn of the century. It originally functioned almost as a guild for doctors but it ultimately took up the task of lobbying government for special favors. The government granted the AMA exclusive right to grant medical licenses. The AMA opposed lodge practices (and direct primary care) because it made healthcare too affordable and lowered the wages of doctors. They began restricting the number of doctors by granting fewer medical licenses in order to drive up healthcare costs. They also censured doctors that signed contracts with lodges and could even revoke a doctor’s medical license if he decided to cut a deal with a fraternal society. The insurance industry was another special interest group that lobbied for government to suppress the lodge practices and other forms of direct primary care. The argument from the insurance industry was that direct primary care entails a monthly or yearly fee that essentially serves as an insurance premium and doctors simply don’t have a license to sell insurance. These institutions that historically provided the working class with a social safety net and affordable healthcare were actively destroyed by government, with countless special interest groups cheering on the demolition.
If the government had not actively suppressed these institutions, such voluntary arrangements would still be quite common and the free market would supply us with an adequate social safety net in the absence of government intervention. It became necessary for the government to provide universal social insurance and a robust safety net only because the government destroyed the free-market alternative. The dialectical libertarian may, therefore, recognize that there is a strong libertarian case for supporting the distributist agenda. These organizations were actively destroyed by governments and the historical conditions that originally brought about their spontaneous emergence in the marketplace are no longer extant. Medieval society was united by a common religious conviction, strong Christian solidarity, and a shared belief in Catholic social teachings. The medieval guild system was largely rooted in that culture, a product of traditions and morals passed down from previous generations. The guild system was not something actively imposed from the top down but something that had evolved over the course of centuries as a result of trial-and-error experimentation. The guilds were not perfect but they did have important and necessary functions. If the government simply stops suppressing all voluntary organizations today, it would likely take centuries for the market to evolve a new solution to the welfare problem through the process of trial and error. Since the government actively tore down the social welfare institutions of the free-market system, it may actually be necessary for the government to take an active role in restoring those institutions. The same argument can be made for cooperatives. Cooperatives became quite popular following the Industrial Revolution. However, rules and regulations have made it quite hard to establish a cooperative, secure a loan as a co-op, or receive government subsidies or funding as a co-op. Receiving government subsidies would not, of course, be essential to surviving as a co-op if not for the fact that the government is actively giving subsidies to the competition. Legally structuring as a co-op gives a company disadvantages that incentivize startups to structure as conventional firms instead. Co-ops declined in popularity because they were suppressed by burdensome regulations and unfair treatment. Until the government stops granting special privileges to their competitors, there is a strong dialectical libertarian case for having the government subsidize cooperatives.
The libertarian and the distributist are not, therefore, natural enemies as the Misesians and Rothbardians would have you believe. In fact, a principled dialectical libertarian could very well argue for libertarian distributism. The interventions that the distributists support are precisely the types of interventions that are needed in order to undo unjust historical interventions and restore a “truly free market.”
Embracing the Hayek-Friedman model of the welfare state will help get us back to property-owning democracy, a system with widespread distribution of ownership. However, a true restoration of market alternatives to a governmental social safety net will require the government to take an active role in fashioning regulations conducive to the emergence and survival of the sort of institutions we would like to see make a return. And, since the cultures that produced guilds and co-ops historically are no longer extant, it may be necessary for the government to step in and actively sanction and subsidize the rebuilding of the guild system and the cooperative movement. The distributist and the libertarian may disagree on fundamental principles but the overlapping consensus should be enough to get them to work together for the restoration of guilds and co-ops as social institutions.
Finally, I wish to make the case that the libertarianism of Hayek and Friedman is not only compatible with distributism but also that, in a very important sense, libertarianism and distributism really go hand-in-hand and that it is chiefly a misinterpretation of Hayek and Friedman that leads people to conclude otherwise. Many prominent libertarians and prominent distributists have interpreted these philosophies as being necessarily antagonistic. I believe they have done so in error.
It is well-known that Hayek and Friedman both openly criticized the concepts of distributive justice and egalitarianism. However, lest one mistakenly think that they would have been hostile to the cause of distributed property, we should look a little more closely at their position. It should be remembered that they also criticized the welfare state but we have already seen that they advocated a very robust welfare state — their critique of the welfare state was really a critique of the intrusive and paternalistic welfare state that had developed in nearly all capitalist countries. When Hayek and Friedman spoke negatively of the welfare state, they were speaking particularly of what Hilaire Belloc referred to as the servile state. The servile state is a form of the welfare state that makes people dependent upon the government rather than merely giving them the means to be self-sufficient. The libertarian social safety net that Hayek and Friedman supported simply guarantees access to healthcare, food, shelter, etc. The servile state entails an immense bureaucracy whereby a paternalist state inspects the affairs of welfare recipients, scrutinizes their conduct, makes sure unemployed people are looking for work, has government doctors directly treat people, provides the poor with food and public housing of a standard kind, etc. The libertarian welfare state, on the other hand, merely ensures that the poor are given enough money to purchase the necessities of life and then allows them to make their own decisions about their own needs. When Hayek and Friedman criticize the welfare state, they are always criticizing the servile state in particular. There is a similar nuance with regard to their critique of distributive justice and egalitarianism. When Hayek criticizes the concept of distributive justice, he has in mind things such as “a just price” and “a just wage.” Similarly, when criticizing egalitarianism, Hayek has in mind the sort of egalitarianism you find in Josiah Warren’s concept of “equitable commerce,” wherein it is contended that things must be sold at cost of production. This is the sort of egalitarianism associated with certain strains of libertarian socialism that attempted (during the Spanish Civil War, for instance) to ban profits. His criticism here is that the pricing mechanism is the means of efficiently allocating resources in a market system. Trying to ban profit or interfere with prices in order to ensure egalitarian results really undermines the whole market process. Apart from the occasional imposition of Pigouvian taxes in order to embed social costs into the prices of goods and services, the pricing system needs to be left alone to do its thing. Furthermore, as I pointed out in a previous essay in this series, Hayek adhered to a civic republican conception of liberty as non-domination. The republican conception of liberty, as non-domination rather than non-interference, entails some concept of distributive justice in the sense in which distributists are concerned with it — one can be dominated by the wealthy just as easily as one can be dominated by the government. Indeed, Hayek echoes the concerns of proponents of distributism and property-owning democracy when he asserts that property must be widely distributed in order for markets to preserve liberty.
“The recognition of private or several property is thus an essential condition for the prevention of coercion, though by no means the only one. We are rarely in a position to carry out a coheret plan of action unless we are certain of our exclusive control of some material objects; and where we do not control them, it is necessary that we know who does if we are to collaborate with others. The recognition of property is clearly the first step in the delimitation of the private sphere which protects us against coercion; and it has long been recognized that ‘a people averse to the institution of private property is without the first element of freedom’…
“In modern society, however, the essential prerequisite for the protection of the individual against coercion is not that he possess property but that the material means which enable him to pursue any plan of action should not be all in the exclusive control of one other agent. It is one of the accomplishments of modern society that freedom may be enjoyed by a person with practically no property of his own (beyond personal belongings like clothing — and even these can be rented) and that we can leave the care of the property that serves our needs largely to others. The important point is that the property should be sufficiently dispersed so that the individual is not dependent on particular persons who alone can provide him what he needs or who alone can employ him.
“That other people’s property can be serviceable in the achievement of our aims is due mainly to the enforcibilty of contracts. The whole network of rights created by contracts is as important a part of our own protected sphere, as much the basis of our plans, as any property of our own. The decisive condition for mutually advantageous collaboration between people, based on voluntary consent rather than coercion, is that there be many people who can serve one’s needs, so that nobody has to be dependent on specific persons for the essential conditions of life or the possibility of development in some direction. It is competition made possible by the dispersion of property that deprives the individual owners of particular things of all coercive powers.” — F. A. Hayek (The Constitution of Liberty, Ch. 9)
For Hayek, competition is necessary to secure liberty and property needs to be widely distributed in order for competition to prevail. Concentrating ownership into the hands of a few corporations — or into the hands of the government — destroys competition and the liberty that competition secures. At the same time, Friedman argues that we must prevent big businesses from conspiring together to limit competition, that government must ensure that anyone can freely enter the market in order to compete with established businesses, and even that this may require breaking up of big businesses from time to time.
“The state would of course have the function of maintaining law and order and of engaging in ‘public works’ of the classical variety. But beyond this it would have the function of providing a framework within which free competition could flourish and the price system operate effectively. This involves two major tasks: first, the preservation of freedom to establish enterprises in any field, to enter any profession or occupation; second, the provision of monetary stability.
“The first would require the avoidance of state regulation of entry, the establishment of rules for the operation of business enterprises that would make it difficult or impossible for an enterprise to keep out competitors by any means other than selling a better product at a lower price, and the prohibition of combinations of enterprises or actions by enterprises in restraint of trade. American experience demonstrates, I think, that action along these lines could produce a high degree of competition without any extensive intervention by the state. There can be little doubt that the Sherman anti-trust laws, despite the lack of vigorous enforcement during most of their existence, are one of the major reasons for the far higher degree of competition in the United States than in Europe.” — Milton Friedman (Neo-Liberalism and Its Prospects)
