Free Enterprise and the Common Good: Economic Science and Political–Economic Art as Complements

COMMENTARY Conservatism

Free Enterprise and the Common Good: Economic Science and Political–Economic Art as Complements

May 9, 2023 23 min read

Former Director, Simon Center for American Studies

Richard was Director of the B. Kenneth Simon Center for American Studies and AWC Family Foundation Fellow at The Heritage Foundation.
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Alex Salter discusses his new paper for The Heritage Foundation that weighs the relationship between free markets and the common good and the framework it provides for thinking about economics, the human person, and community.

Richard Reinsch: Hello and welcome to Defining Conservatism, a podcast of The Heritage Foundation. I'm talking today with Alexander Salter about his new paper for The Heritage Foundation entitled Free Enterprise and the Common Good. Alexander Salter is the Georgie G. Snyder Associate Professor of Economics in the Rawls College of Business at Texas Tech University. He's also the Comparative Economics Research Fellow at Texas Tech University's Free Market Institute and a Senior Fellow at the American Institute for Economic Research's Sound Money Project. He's also the author of a new book recently published by Catholic University of America Press, titled The Political Economy of Distributism. Alex Salter, thank you so much for joining us today.

Alexander Salter: Richard, it's a pleasure. Thank you for having me.

Reinsch: So your paper, Free Enterprise and the Common Good, we had been working on that for a number of months and it was published a couple of weeks ago and there's been a lot of interesting responses to it. I know you've received many of those responses, a lot of it on social media. Much of the criticism has taken the position that you were slighting free enterprise or suggesting that we need a much more stronger federal government to make federal enterprise or free enterprise, I should say, serve the common good. Is that what you were going for in this paper? Maybe flesh out for us what you say in this paper and what you're trying to achieve.

>>> Free Enterprise and the Common Good: Economic Science and Political–Economic Art as Complements

Salter: Sure. So what I wanted to do with this paper was charitably interpret and engage a new vein of economic thinking on the right. It's no secret that broadly nationalist trends on American conservatism are in the ascendancy and they have a lot of ideas for how to reform federal policy, especially with respect to economic policy. And what I wanted to do in this paper is figure out, okay, what are they actually saying? What are the disagreements about between the newer kind of conservative and older classically liberal conservatives? And I wanted to do that being as open to a discussion as possible because really what we're going to have to do over the next couple of years is figure out what the broad coalition on the American right is for, and figure out what sort of mutually beneficial political policy exchanges we can accept to advance our separate agendas. It's sort of always been like that on the right. We've always been a coalition of several forces who don't always agree on everything.

And in the paper I explicitly say, look, I am an older style classically liberal conservative. I still believe in free enterprise and a lot of the people that I'm critiquing are more comfortable than I am with a more expansive role for the federal government in the economy. Rather than write them off and say, "These silly conservatives, haven't they read their Hayek or haven't they read their Buchanan?" How about we actually figure out what their proposals are, what they want to accomplish, whether federal policy can actually achieve that and whether it can come at reasonable cost? And so what I hoped that this would do is lay the foundation for several discussions about policy going forward.

Reinsch: Thinking about your paper, you talk about, we'll say the national conservative position to the extent we can define that. And then also you talk about a post-liberal challenge as well, and economics from Adrian Vermeule, Patrick Deneen and others. How do you understand their position regarding the interplay between economics and the federal government? I mean, and you talk about the subtitle of your paper was Economic Science and the Political Economic Art as Compliments. What are they assuming about the current economy, I think the things that have happened over the last few decades and what should be done as a result?

Salter: Sure. So I think on the new nationalist right, there is a consensus that free enterprise has not served the common good. That's their starting point. That's what they contend based on trends in the distribution of income, manufacturing employment, and other employment opportunities available to those Americans who don't have a college degree, increased inequality, the hollowing out of civil society institutions first and most importantly, marriage. Many of the nationalists and common good conservatives attribute this to the operation of economic forces in various ways. And they don't all have the same argument. If you read Patrick Deneen, he's pretty clear about how economic liberalism hollowed out civil society. Adrian Vermeule actually has an interesting argument where he critiques invisible hand style reasoning of the kind that economists have used since the days of Adam Smith, basically saying that in order for markets to actually be efficient and deliver us a best of all possible worlds, there is these restrictive set of conditions that actually need to prevail. And when we look at the real world, those conditions are nowhere near actually true so we need the jettison, this belief in the market.

Sociologically, that article that he wrote Professor Vermeule did was interesting to me because normally that's the exact argument that the progressive left makes. They critique open markets, they critique competitive markets on the ground that they're not sufficiently competitive and can't deliver efficiency. And so from a sociological standpoint, I found it interesting that here we have this argument being made by somebody from the right. So that's an interesting change that I think that we need to take account of.

Again, these are not my positions. I'm still broadly optimistic about free enterprise. I'm still a classical liberal conservative myself, but I do think that these are rising voices on the right, they're part of the coalition, they have concerns and they need to be addressed. And rather than belittling them, we need to actually look at the claims that they're making, see if they make economic sense. That's where we engage the economic science part of this. Economics is a science, it's a social science, but it's nonetheless a way of getting us reliable knowledge about some important feature of the world. And so we can assess the claims that nationalists and common good conservatives make based on they say markets are doing X, Y, Z things. Based on what we know about economics, is it actually true?

But we can also distinguish economics from political economy, which is more artful and it has an inherently prescriptive dimension. It's normative, it's ethical based as all policy discussions ultimately have to be. And just because we have a really good way of understanding how markets work, that doesn't necessarily mean that economic science is best positioned to do a broad based deep level critique of society's basic institutions. That's going to be a more broad-based ethical project, and I think that good economics can be an input into that project, but it does not define the limits of that project. There's more to it than that.

Reinsch: Something else you talk about in the paper, ways of managing the tension, if not outright disagreements between those who advocate for the free market and those urging a more national populist standard. You talk about the common good in your paper. What do you mean by the common good and what's its relationship to free enterprise? Is there a relationship with free enterprise or are the these two things opposed to one another?

Salter: Great question. Ask 5 different people what the common good means and you'll get 10 different definitions. So the one that I use in this paper explicitly comes from Catholic social teaching. Many of the newer conservatives are informed by Catholic social teaching. Many are practicing Catholics, and even if they aren't, they're very sympathetic to the Catholic Church's way of looking at these things. So the textbook answer to what the common good means there is the sum total of conditions that allows a human community to flourish qua community, as a community. This idea that there are authentic human groups from the family at a local level all the way up to the nation that are not reducible merely to their individual members and they have interests and enable them to flourish as a group, as a common association of human beings that are joined for the pursuit of virtue.

And so if you are someone who looks at the world and sees only individuals and you think that institutions and groups are shadows and not really real, you're probably not going to be predisposed to looking at that and seeing anything meaningful there. That's not how I tend to think about it. Even though I am a methodological individualist in terms of how I do social science, I think it's appropriate that we analyze from the perspective of economics group decisions based on individual decisions. That doesn't mean that I'm a, I guess I would say metaphysical individualist. I don't think that individual persons are the only things that exist in the social world. Families are real, nations are real, various social institutions are real. And we need to take seriously the moral claims that these communities that are ultimately for human beings, we can't flourish except in the community, that these communities have interests and needs that are not reducible to some private goods of their individual members.

So once you take that move, it becomes very natural to ask the question, okay, well how do we assure these essential authentic communities the good that they need in order to shape the individuals who operate within them well and for good purposes? And that directly engages the broader political economic art that I talk about in the paper. Again, you need good economics to have this conversation. If you don't understand how markets work, you're not going to go very far. You're probably going to make bad public policy recommendations, but understanding supply and demand and all the nuts and bolts of scientific economics by itself will not get you to the broader, more humane vision that I think we need.

Reinsch: But I suppose if we think about, we'll say like conservative liberal thinkers like Jacques Maritain, others come to mind who talked about the common good. It was something individuals contributed to, but it also gave something back to them and it was ultimately for the sake of individual flourishing within communities, within say a political community. I take it there is a line of criticism out there that, well, the common good is just this substantive body and can demand many sacrifices of individuals who must do it because it's actually prior in importance and is more important, I guess I should say, much more important than anything they are as human beings. I suppose that's the fear in many respects when people hear common good talk.

Salter: There is that worry. I don't find too many thinkers who make explicitly that move. Don't get me wrong, they're there. You'll especially find them in the integralist camp these days. But if you read many thinkers who take a common good perspective, especially informed by Catholic social teaching, respect for the dignity of the human person is an essential component of the common good. So this idea that you're going to subsume the human person to the collective and stamp out any and all individual rights and dignity and initiative, I don't think that that's the way that this is actually supposed to work. And I don't think that this is the way that it would work were we to take the common good seriously.

Again, I'm not denying that there are some people that place the wellbeing of the community, of the collective so highly that they're willing to radically restructure society's institutions, including our political traditional institutions in a way that might infringe on some of the basic rights of dignity that we've previously accorded to human persons. But I think it would be a mistake to characterize a majority of the new right on those grounds. I think that that's probably just an excuse that libertarians like me might want to make to write them off without having to engage them seriously.

Reinsch: Think, something else that's very prominent in your paper and trying to manage these difficulties is an immense body of thought known as Catholic social thought. May help us understand Catholic social thought and why you think it's important in these debates.

Salter: Well, the first reason it's important in these debates is because the debaters themselves think it's important. They're explicitly rooted in that tradition. They're citing the papal encyclicals, they're citing the catechism of the Catholic Church. And so insofar as that represents a non-trivial interest group within the American right, we have to take that seriously. That there's some hefty intellectual firepower there and it would be silly just to ignore it because we're going to have to work with these people to get the policy reforms that we need over the next couple of years to couple of decades. But apart from the more narrow consideration that I just outlined, I do think that there are ideas here that are intrinsically worthwhile in the sense that they should be engaged and taken seriously because they actually help us understand the normative dimension of political economy in a better way than we would be able to do without them.

So if you look at the history of Catholic social teaching. In a way that label is a bit of a misnomer since the church has always applied her teachings to social and ethical questions, but granting the validity of the label, it arose really in the late 19th century as the church began wrestling with the political and economic problems of modernity. The relationship between capital and labor, the proper structure of political institutions, the importance of subsidiarity, the idea that we're going to locate political authority and the most local community that's capable of wielding it. And so you go and look at those papal encyclicals, you go and look at the catechism of the Catholic Church and you discover that there's actually a very well-developed body of thought that helps us understand what the person is due, the human person is due, is a basic matter of dignity, what the human person owes other human persons and what all persons owe the community.

And so balancing those various dimensions of justice I think actually happens at the level of society's institutions. So I think that there's a really great and under-exploited link between, on the one hand Catholic social teaching and on the other hand the branch of social science that we call comparative economics or institutional economics, the use of the tools of economics to analyze the rules of the social game and what their predictable results are. And I think that by joining those two previously separate literatures or ideas together, we can actually get a lot done in terms of pure scholarship in terms of understanding the social world, but also some really good and durable policy reforms. So I think that we have the best of both worlds here.

Reinsch: So Catholic social thought, what does it tell us about the market itself, the free market, the person operating within it either as a laborer, as an owner, as a consumer? Maybe help us understand how this touches us.

Salter: A lot of people think that Catholic social teaching is very anti-market. That's not how I read the tradition. It's true that Catholic social teaching does not embrace total laissez-faire. They say that a 100% free market in everything is unacceptable, which isn't surprising given the Catholic Church's positions on, for example, prostitution or abortion or those related practices that could be subject to the market mechanism. But if you dig a little deeper, they do explicitly say it in this tradition, private property is licit, it's not just a concession to sin. It's actually good in its own rights since this affords a social space for individuals to develop their virtues, practice their talents, and actually craft their own lives and become virtuous individuals. Then it has many good things to say about voluntary market exchange. It's true, they don't say, this tradition doesn't say that the market can solve all social problems. There are some things that simply ought not have a price morally speaking. But within its proper sphere, the interplay of private property and voluntary exchange is an important component contributing to the common good.

The church does say also that aside from on the one hand complete laissez fair, which is unacceptable and complete communism or socialism, which is also unacceptable, there is a broad middle ground that various societies can rightly embrace with respect to private ownership and free exchange, freedom of contract, all these things. I myself happen to think that the freer these institutions are the more that will conduced to the common good. Many on the new right disagree. And I think it's important for us to be honest about our disagreements and pinpoint specifically the variables that we're disputing over and the kinds of arguments that would change our mind because otherwise we're just going to be ships passing in the night.

Reinsch: So do you find Catholic social thought actually weighing in at, might be a more granular level on the policy disputes that we're having now in Western economies in the American economy? Or is it more about the dignity of the human person, why government should be restrained by law and rules and not human will? Do you find it me more metaphysical, moral concerns that shape a humane society?

Salter: I think most of it will happen at the level of deliberation of the principles that go into our political debates and comparative institutional analysis. I don't think that it's going to be very fruitful to say we want a tax on imports because Catholic social teaching says so. I'm sure that a tariff is compatible with Catholic social teaching in some circumstances. I'm also sure that it's not compatible with Catholic social teaching in other circumstances. And what you look and see is the church actually says that we're not going to recommend a specific sociopolitical model or a specific economic model. What we are going to do is dictate the principles and the ethical norms that should underlie these discussions because that's where the church's comparative advantages in terms of teaching and faith and morals. So I would shy away from grounding ... Let me put it this way.

It is perfectly okay to say that specific policy recommendations are grounded in social teaching. The hesitancy, I would say, should come in where you say that this policy and only this policy is the correct one in light of Catholic social teaching. I don't think that that's the right way to use those principles. And I think that many people who are the most ardent defender of those principles would agree with that by the way, they would say the right way that we incorporate this body of knowledge into our public deliberations is to figure out what sorts of broad level moral goods do we want to secure. And then we can also bring in positive social science to help us with the comparative institutional analysis and design that will actually help us secure those goods.

Reinsch: Another interesting part of your paper, Alex, is, and interesting as well that we have these disputes right now going on as we're discussing, and you think a German economist, Wilhelm Röpke, widely cited as the author of the post-war German economic miracle with reforms that he helped implement in 1948, is a way of helping us sort of wade through these difficulties. Talk about him and why you think he's so important here.

Salter: Absolutely. Röpke is a very important figure in these debates because I think that he gets the balance right between scientific economics and artful political economy. Here was a guy who's very much a conservative liberal, very much a fan of free enterprise, but also has broader humanistic concerns. Russell Kirk, who was the Dean of post-war, Anglo-American conservatism famously did not like economists. He had the same opinion of economist that Burke had, but he loved Röpke. Röpke's book, A Humane Economy was plugged by Kurt who enjoyed it very much and thought this was the right balance of, on the one hand, social scientific analysis that really needs to be hard-nosed and digging under the trade-offs and also have a broader ethical perspective that's commensurate with the dignity of the human person.

So these discussions necessarily start from a bit of an abstract place, debates on the American right, Catholic social teaching. What does this mean in terms of concrete analysis of society and politics? How do we actually put together a reform agenda? What I wanted to do in this paper is actually put forth Röpke as an exemplar of how we actually do that because he was a top tier economist, top-notch economist, he was very respected in his own day by the international economics profession. But he was also, even though he was not himself Catholic, deeply influenced by Catholic social teaching, he was influenced by the distributors, thinkers like [inaudible 00:19:36] and G.K. Chesterton who tried in previous generations to apply Catholic social teaching in an institutionally sensitive way.

And the writings that Röpke left us, especially his Humane Economy, I think show us how we strike this balance in the right way, how we respect the more humanistic concerns while at the same time not doing violence to economic science. You've got to know how markets work, but knowing how markets work is not enough. You have to have broader humanistic concerns, but you can't just harp on human dignity without doing the hard work of looking at, well, how do the rules that you're proposing actually work in terms of affecting society's distribution of income, affecting the availability of employment opportunities for the least among us? These things need to go together and Röpke does it brilliantly, I think.

Reinsch: So Röpke was concerned about, I'll say a mass society, a centralized society where you had, well manufacturing perhaps was a dominant part of the economy. You had ownership, he feared if it was not widely dispersed and not just of capital, but land, homes. So people sort of living temporary or tenement style existences not owning a lot of things other than their labor. And you just seem to be thinking that this would lead people not to be enlisted on behalf of a free society, what would become susceptible to Marxist or socialist appeals because they didn't want to see what was in it for them. How did he respond to that?

Salter: Absolutely. Röpke was all about cultivating a society of owners. His point was that one's property, including productive property, especially productive property, not just financial capital, was widely dispersed. And you had people who actually own the factor of production who were responsible for their livelihood in the market. That came with a very different set of incentives with respect to public deliberation and basic citizenship. A society of owners, a society of relatively small and independent proprietors, were not going to accept on the one hand economic collectivization or a political collectivization. So if we want to actually protect a free society, Röpke claims, we need a degree of economic independence. We need that protection afforded by ownership. And I think that that point is important because it speaks to a lot of the debates that we're having right now about industrial policy on the American right. This is something that I talk explicitly about in the paper.

If you read a lot of advocates of a very interventionist industrial policy today on the American right, their proposals basically want to make the American economy today look like the new deal economy of the 1930s in terms of heavy-handed, top-down bureaucracies and a small number of industrial conglomerates for whom there's going to be a large number of employees, but not really in any meaningful sense, ownership. To Röpke, that's a very precarious position because you're not affecting the basic incentives associated with citizenship and responsible participation in public life. If you want to actually have a society of individuals, of human persons, families that have a stake in the social order, there needs to be that degree of economic independence afforded by not just employment but actually ownership.

And so this is actually something that goes very deep into the American tradition of political economy. I would say that Röpke is actually putting a Jeffersonian spin on some of the economic problems that we confronted in the mid 20th century. Now obviously, the specific problems that we confront today are not the same as the one that he was writing about 80 years ago. So we cannot just take his policy proposals and control Ctrl C, Ctrl V them into legislation before Congress. That's not how it works. But the way that he thinks about these problems, I would contend is equally valid today as it was 80 years ago. And so that's what we want to take away from this.

Reinsch: Oh, so we've got about six minutes left here, Alex. I want to think about two policies in particular that are constantly up for discussion. One much more prominent, industrial policy. That is to say, enlisting the federal government on behalf of one sector or multiple sectors in the economy to boost working class, middle class employment and wages. Would Röpke see that as a way forward or would he be maybe ambivalent about that? And what do you make of this policy?

Salter: Röpke had some positive things to say about a limited industrial policy, but they were immediately tempered by his concerns for bigness and monopoly and oligopoly. So he would be much more sympathetic to the idea of dispersing productive property rather than necessarily concentrating it subject such that you can get a much bigger expansion in manufacturing output and manufacturing employment. So by the way, one of the things that isn't mentioned enough in these discussions today is that while it's true that manufacturing employment in the US is significantly down from the 1970s, manufacturing output has gone up, up, up pretty much constantly, and that's not because of outsourcing. That's because we've actually invested in greater capital, technology, labor saving devices, and it has again, nothing to do with outsourcing to China. Of all the manufacturing jobs that the US economy has lost over the past 50 years, no more than 1 in 5 were offshore. So even if you got rid of all the jobs that were "shipped to China," you would still have four out of five manufacturing jobs lost because of labor saving devices.

So when you look at that perspective combined with Röpke's skepticism of bigness, skepticism of discretionary bureaucracy, skepticism of top down power, I think that that shows us that there are a whole host of problems with industrial policy that we've ultimately ground not on the standard efficiency logic of economics, but on these broader humanistic concerns for the human person. And so we can take these concerns that the new right is raising and we can say, look, I accept your ethical values and I accept that they're different than these standard values put forth in the normal economic policy space. But it turns out that your policy proposal is going to make things worse. They're actually going to harm those goods that you claim that you want to advance. That's just standard means ends analysis. That's good economics put in the service of artful political economy.

Reinsch: Another concern, and this was actually reflected this weekend, Michael Lind, prominent author, I'll say in the national populist side, professor at University of Texas, Austin, Johnson School of Public Policy, arguing that in effect our labor markets over the last three or four decades have become remarkably inefficient and wages are actually being suppressed. A part of that story is sort of a wage subsidy policy. We have the earned income tax credit, which allows employers, he argues to hold wages low, and what we should do is have maybe not conventional labor unions, but organize employees by sector to bargain with employers to push wages higher. That seems to be also sort of a prominent part of the debate that we're having. What do you make of that in light of what we've been discussing?

Salter: It's true that collective labor can raise wages and that might raise total income for workers, but that only comes at the cost of pricing some other workers out of the labor market. You're ultimately not going to boost wages without restricting quantity of work, without restricting hours worked. So I tend to view that as a misguided policy that's in the service of a worthy end. Of course, we want people to have better living standards. Of course, we want the American workers to do better. But if you look at all the wage and more importantly total compensation statistics over the past 50 years, the story that we tell about wages stagnating just isn't true. Dollar compensation might not be going up as fast as we want, but if you look at non-wage benefits, those are massively up.

And given that that's where the increased costs are coming, look at the cost of healthcare, the cost of health insurance, the fact that those non wage benefits are also being provided for in terms of the employment contract. Again, economic theory doesn't necessarily tell us that the bulk of the gains to labor is going to occur in wages. You have to look at the total compensation package.

So I see this call from more unionization as a step in the wrong direction. I think that rather than trying to cartelize labor markets, which is in effect what coerced unionization would be, we would actually want to think about policies that the reformicons were thinking about about 10 years ago, ways of increasing flexibility, ways of increasing moveability, ways of making sure that workers are not locked into jobs. So ultimately, I think that there are lots of beneficial things that we could do to improve the functioning of labor markets, but that's not going to have much to do with using top-down policy to collectivize the labor side of the bargain. We already know how that works and it doesn't work good.

Reinsch: Thinking about Röpke here, as we close, increasing ownership, it seems to be the last conservative [inaudible 00:28:36] the conservative where we really discussed this was George W. Bush's presidency, health savings accounts, trying to provide people much more ownership over their retirement, trying to increase home ownership. We know that didn't turn out so well, but there was this idea moving towards an ownership society in his rhetoric and in some of his policies, and then that seemed to have just fallen off. Is that sort of in the direction we should move? Is there something there we should recover? What do you make of that?

Salter: I think that the way of thinking about it is right, but as you pointed out the devil's in the details, it's wonderful to say that people should own their homes. I'm a huge advocate of home ownership, but if you artificially lower the price of credit and then push people who are not sufficiently credit worthy into homes they can't afford, you have the 2008 crisis all over again. So this is a precarious thing. We can talk about an ownership society, and I think that that is something that we should work towards. But we have to remember that we have a lot of theoretical lifting yet to do because in Röpke's time, the 1950s, you could still talk about the actual factors of production tools, those sorts of things that are not as relevant in today's economy.

So if we want to create a society of owners rather than renters, if we want to strengthen those incentives for people to actually have a stake and a free and orderly society, we need to figure out what is the 21st century analog of ownership? Surely it's not just everybody opens up a Vanguard account and buys exchange traded funds. I mean, I'm an advocate for that too, but I don't think that that exhausts what we want to actually accomplish with this.

Reinsch: Alex, thank you so much. We've been talking with Alex Salter, the author of the new Heritage Foundation paper, Free Enterprise and the Common Good.

Salter: Great. Thank you so much.

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