October 21, 2011

The Eminently Real Free Market (XLIII): Sketchy Stories (31): Kicking Capitalism While (Fan)Fanning the Embers of Fascism (2)

Amintore Fanfani, the star of yesterday’s post, makes another appearance in TCATL in Mr. Ferrara’s eighth historical sketch, this time by name. We will get to him presently.
8. Corporate cost externalization: the “nanny state.”
Here he exposes the alleged hypocrisy (or perhaps merely the inability to remember “from one moment to the next”) of Austro-libertarians who rail against the welfare-warfare state “while failing to mention the role of corporations in its emergence and persistence.” (28)
By now you probably know how this goes: first, the overgeneralization dressed in scare quotes followed by a mélange of extraneous matters, each of which needing a reply (which, as you should also know by now, each one will get, but in due course):
Under the corporate status quo of our “free” market society, which institutionally rejects the Catholic concept of the just or living wage (see Chapter 12), corporations are able to “externalize” onto government (i.e., the taxpayer) not only transportation costs, as discussed above, but also the costs of supporting wage-dependent employees, including health and retirement benefits. (28)
The salient “failure to mention” here is Mr. Ferrara’s, whose yellow journalism overlooks Murray Rothbard, for his exposure of this very externalization (why the scare quotes?) was a major theme of his scholarly career. Here is a sample of his thought on this matter:
Under cover of the Civil War, then, the Lincoln Administration pushed through the following radical economic changes: a high protective tariff on imports; high federal excise taxes on liquor and tobacco (which they regarded as “sin taxes”); massive subsidies to newly established transcontinental railroads, in money per mile of construction and in enormous grants of land all this fueled by a system of naked corruption; federal income tax; the abolition of the gold standard and the issue of irredeemable fiat money (“greenbacks”) to pay for the war effort; and a quasi-nationalization of the previous relatively free banking system, in the form of the National Banking System established in acts of 1863 and 1864.
In this way, the system of minimal government, free trade, no excise taxes, a gold standard, and more or less free banking of the 1840s and 1850s was replaced by its opposite. And these changes were largely permanent. The tariffs and excise taxes remained; the orgy of subsidies to uneconomic and overbuilt transcontinental railroads was ended only with their collapse in the Panic of 1873, but the effects lingered on in the secular decline of the railroads during the 20th century. . . .
The chief architect of this system was Jay Cooke, long-time financial patron of the corrupt career of Republican Ohio politician Salmon P. Chase. When Chase became Secretary of the Treasury under Lincoln, he promptly appointed his patron Cooke monopoly underwriter of all government bonds issued during the war. Cook, who became a multi-millionaire investment banker from this monopoly grant and became dubbed “the Tycoon,” added greatly to his boodle by lobbying for the National Banking Act, which provided a built-in market for his bonds, since the national banks could inflate credit by multiple amounts on top of the bonds. (“Government-Business ‘Partnerships,’” as it appears in Rothbard, Making Economic Sense, Second Edition, 2006, Ludwig von Mises Institute, 190-192)
The article concludes:
The northeastern Republican Establishment is still cartelizing, controlling, regulating, handing out contracts to business favorites, and bailing out beloved crooks and losers. It is still playing the old “partnership” game—and still, of course, at our expense. (Ibid., 192.)*
Rothbard’s remedy, of course, was the opposite of Mr. Ferrara’s “freedom through moral restraint” program. It was rather to free markets from the State by reducing and ultimately abolishing the latter. Upon reading this correction of his account of the Austro-libertarian position, will Mr. Ferrara humbly bleat, “Oh. Never mind,” à la Emily Litella? To ask is to answer.
As it becomes clearer with each page that Mr. Ferrara intends to offer only more fallacy-infected, anti-capitalist litanies, we will take the occasion they provide to push the antithesis between his viewpoint and ours. Mr. Ferrara’s literary authorities are clues to the affinities that his Distributism bears to one form or another socialism, be it corporatism, guildism, democratic industrial organization, or, we now see in the case of Amintore Fanfani, Fascism. It is germane to the purpose of this blog to point them out.
NB: We are aware of Mr. Ferrara’s formal denial of socialism, if no other reason than that Pope Pius XI declared in Quadrogesimo Anno that “No one can be at the same time a sincere Catholic and a true socialist.” Mr. Ferrara is nothing if not a sincere Catholic. Since, however, his criticisms display the same economic ignorance that distinguishes franker socialists, draped in the same historical romance, then his denial rings hollow. Now, to Fanfani.
The renowned Italian economist Amintore Fanfani, who served as Prime Minister of Italy and President of the United Nations General Assembly, summarized, this truth about capitalism thus: “The State, by carrying out public works in a capitalist-liberal régime, lessens the risks of producers, andlamost plays the part of an insurance system.” (28)
We postpone a discussion of the tendentious description “this truth about capitalism.”
Readers had to wait until Mr. Ferrara quoted Fanfani a second time to get an insight into the meaning of this appeal to authority. Just why did Mr. Ferrara cite him? Because he was a scholar, a specialist in economic history, who taught at the Universities or Milan and Venice? Mr. Ferrara never mentions those achievements. Mr. Ferrara doesn’t even tell us that Fanfani was a Catholic, arguably relevant to Mr. Ferrara’s purposes in the  book under scrutiny. Does he believe that “Amintore Fanfani” is a household name, like, for example, “Abraham Lincoln,” in which case further denotation would insult the reader? We learn a bit of Fanfani’s post-war career but not why we should pay heed to the utterances of Italian Prime Ministers or Presidents of the U.N. General Assembly.
Most remarkably, he doesn’t mention Fanfani’s career as a fascisto-Catholic theoretician (before he reinvented himself as a center-left Christian Democrat), outlined in our previous post.** Remarkably, we say, for in the 21st century one does not responsibly quote such a figure without also distancing himself from that political commitment. One does both especially if one is a Catholic—unless, of course, one is attracted to aspects of Italian fascism. We’re anarcho-Catholics. If one is a fascisto-Catholic, one should step up to the microphone and say so rather than hope no one will notice that he’s quoting an earlier fascisto-Catholic. If one is not, then one should take pains to ensure that no one draws that fateful inference from one's words.
Now this blog is about TCATL, not Fanfani, but let’s take advantage of the present opportunity. As Fanfani was a scholar, a note on his contribution to the current state of economics education is germane.
For light on the roots of one of Fanfani’s ideas, we once again turn to Murray Rothbard, this time his magisterial Austrian History of Economic Thought. In the following passage he traced several symptoms of the economic ignorance on display in TCATL to 14th-century theologian and mathematician Heinrich von Langenstein the Elder, who was plucked from obscurity by a couple of scholars who unfortunately latched onto, not his expertise in divinity or math, but his economic notions.
In his usual entertaining way, Rothbard exposed the ageless rationale for the intervention known as price-fixing—the desirability of maintaining one’s station in life, draped in moralizing solicitude for the poor. Elements of 20th-century corporatism and guildism are discernible. Rothbard shows the power of ideas, especially bad ones, to influence scientific inquiry for centuries.

The Doctrines of One Obscure and Heterodox Scholastic***
Murray Rothbard
One nominalist and student of [Jean] Buridan, Heinrich von Langenstein the Elder (also known as Henry of Hesse) (1325–1397), while an uninfluential and minor scholastic philosopher in his own and later centuries, made great mischief for modern interpretations of the history of economic thought. Langenstein, who taught first at the University of Paris and then at Vienna, began in his Treatise on Contracts by analyzing the just price in the mainstream scholastic manner: just price is the market price, which is a rough measure of the human needs of consumers. This price will be the outcome of individuals” calculations about their wants and values, and these in turn will be affected by the relative lack or abundance of supply, as well as by the scarcity or abundance of buyers.
Having said this, Langenstein proceeded to contradict himself completely. In a highly unfortunate contribution to the history of economic thought, Langenstein urged local government authorities to step in and fix prices. Price fixing would somehow be a better path to the just price than the interplay of the market. Other scholastics had not exactly opposed price fixing; for them, the market price was just whether it was set by the common estimate of the market or by the government. But it was at least implicit in their writings that the free market was a better (or at the very least an equally good) path to discovering the just price. Langenstein was unique in positively advocating government price fixing.
Moreover, Langenstein added another economic heresy. He counseled the authorities to fix the price so that each seller, whether merchant or craftsman, could maintain his status or station in life in the society. The just price was the price which maintained everyone's position in the style to which he had become accustomed — no more and no less. If a seller tried to charge a price to advance beyond his station, he was guilty of the sin of avarice.
Langenstein was the odd man out among the scholastics and late medieval thinkers. No one has been found to second the “station in life” concept of the just price. Indeed St Thomas Aquinas himself effectively demolished this view when he trenchantly declared
In a just exchange the medium does not vary with the social position of the persons involved, but only with regard to the quantity of the goods. For instance, whoever buys a thing must pay what the thing is worth whether he buys from a pauper or a rich man.
In short, on the market prices are the same to all, rich or poor, and furthermore this is a just method of establishing prices. In the bizarre Langenstein view, of course, a wealthy seller of the same product would be obliged to sell it for a far higher price than a poor seller, in which case it is unlikely that the wealthy man would last long in the business.
As far as can be determined, no medieval or renaissance thinker adopted the station-in-life theory, and only two followers adopted the price-fixing position. One was Matthew of Cracow (c. 1335–1410), professor of theology at Prague and later rector at the University of Heidelberg and archbishop of Worms, and particularly Jean de Gerson (1363–1429), nominalist and French mystic who was chancellor of the University of Paris. Gerson, however, ignored the station-in-life notion and reverted to the 13th-century view of John Duns Scotus that the just price is the cost of production plus compensation for labor and risk incurred by the supplier. Gerson therefore urged that the government fix prices to force them to conform to the allegedly just price. Indeed, Gerson was a fanatic on price fixing, advocating that it be extended from its customary sphere in wheat, bread, meat, wine and beer, to embrace all commodities whatsoever. Fortunately, Gerson's view also had little influence.
Von Langenstein was scarcely important in his own or at a later day; his great importance is solely that he was plucked out of well-deserved obscurity by late-19th-century socialist and state-corporatist historians, who used his station-in-life fatuity to conjure up a totally distorted vision of the Catholic Middle Ages. That era, so the myth ran, was solely governed by the view that each man can only charge the just price to maintain him in his presumably divinely appointed station in life. In that way, these historians glorified a nonexistent society of status in which each person and group found himself in a harmonious hierarchical structure, undisturbed by market relations or capitalist greed. This nonsensical view of the Middle Ages and of scholastic doctrine was first propounded by German socialist and state corporatist historians Wilhelm Roscher and Werner Sombart in the late 19th century, and it was then seized upon by such influential writers as the Anglican Socialist Richard Henry Tawney and the Catholic corporatist scholar and politician Amintore Fanfani. Finally, this view, based only on the doctrines of one obscure and heterodox scholastic, was enshrined in conventional histories of economic thought, where it was seconded by the free market but fanatically anti-Catholic economist Frank Knight and his followers in the now highly influential Chicago School.
The much-needed corrective to the older view has at last become dominant since World War II, led by the enormous prestige of Joseph Schumpeter and by the definitive research of Raymond de Roover.
How irenic of Rothbard to describe Fanfani so politely and how interesting that Mr. Fanfani’s partner in this intellectual escapade was the Anglican Socialist Tawney, whom Mr. Ferrara has drawn upon, as we saw last April.
To Be Continued

* “. . . what does one do with the legion of pro-New Deal, -Fair Deal, -Great Society big businessmen: the Paul Hoffmans, the Averell Harrimans, the Rockefeller brothers? Neither the liberal explanation that these were unusually ‘enlightened’ or ‘intelligent’ sports, nor the conservative psycho-smear that they were brainwashed into feeling guilty about their wealth by liberal prep-school teachers, was particularly compelling. Especially when everyone knew that such government intervention as tariffs or import quotas on steel, for instance, were lobbied for, neither by altruists nor by the brainwashed guilt-ridden, but by steel manufacturers anxious to secure their profits from more efficient foreign competition.” Rothbard, “The Business-Government Alliance,” Inquiry, January 1983, republished here.
** In his Machiavelli’s Children: Leaders and Their Legacies in Italy and Japan (Cornell University Press, 2005), Richard J. Samuels reveals facts about Mr. Ferrara’s expert that in turn raise disturbing questions about Mr. Ferrara’s use of him, questions he neither anticipates nor answers.
The Christian doctrine of “voluntarism” was his [Fanfani’s] connection to fascism. On this view, the economy is subordinate to politics, and politics is subordinate to Christian morality. . . . Corporatism was a fundamentally reactionary “third way” between capitalism and communism that suited Catholics and fascists alike. 250
Although his central concern was social justice, he was not beyond nationalist sentiment. Fanfani celebrated Italian imperialism in Ethiopia, for bringing “Roman virtue combined with Christian consecration” to Ethiopia. He praised Mussolini, whom he called “the conqueror of all in the struggle for civilization,” for inculcating a new patriotism among youth and for raising Italy’s stature abroad. . . . In 1937 he wrote that he did not consider fascism a form of tyranny because it limited “only the noxious and dysfunctional liberties.” Totalitarianism, he argued, was acceptable because it organized the inequalities among citizens for desirable collective ends and subordinated rights to duties.” 250
Fanfani continued to write of its [Fascism’s] virtues as late as 1942, arguing that it had succeeded traditional corporatism with its powerful ideas for “organic reconstruction of society and cross-class cooperation.” At this point Fanfani was convinced that fascist corporatism echoed the moral teachings of the Catholic Church, a “coincidence [that] should not serve to diminish the originality and merit of fascist corporatism, but [that] should demonstrate the profound sense of justice that animates the new [fascist] doctrine.” 251.
Fanfani had been attracted to fascism in part because fascist corporatism was consistent with Catholic social doctrine and in part because fascism was politically dominant. He reinvented himself as a center-left Christian Democrat at a time when democracy had become the only means to realize his social doctrine or to achieve political power. 252.
Certainly helps position TCATL within a longer tradition!
*** From Economic Thought before Adam Smith, the first volume of Rothbard’s History, 77-79, was published as a Mises Daily article on January 8, 2010.