Should a Distributist own stocks & mutual funds?

Distributism teaches that ownership of the means of production should be widespread (there’s got to be a way to say that without so many prepositional phrases!).  In other words, it opposes our current form of capitalism (the means of production in the hands of very few; a near-oligarchy) and also opposes socialism (the means of production in the hands of the State).

As such, is it moral/ethical/proper for a Distributist to own stocks and mutual funds?  On the one hand, it’s a form of savings, which is necessary for living a Distributist lifestyle (in the sense that it makes one open to entrepreneurship).  Additionally, we are to be responsible stewards of our money (as Catholic financial expert Phil Lenehan and others say), and bonds are doing terribly.  On the other, it’s a participation in an often greed-based economy, giving tacit approval to the excesses of capitalism often seen in the U.S., and it can be an occasion of sin in terms of getting a greed-based mindset.

What say you?

Eric Pavlat

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Eric Pavlat is a convert from Unitarian Universalism who entered the Church in 1996. He lives in Maryland with his wife and six children. He is also a perpetually professed Lay Dominican in St. Pius V Pro-Chapter, located in Catonsville, MD. He founded Democrats for Life of Maryland, Inc., in 2004, served one term as president, and stayed on the board of directors until 2010. He now considers himself more a Distributist than anything else. Eric teaches 10th grade honors and special education students in English literature, composition, and grammar at his alma mater, Parkdale High School.

  • Mariana

    Buying stocks is a way of owning the means of production collectively — the very core of distributivism. I think it is distributist — but only if we treat it as responsible ownership. Buy stocks from companies that pay employees living wages, that support families, that are motivated by more than just the bottom line (not *instead of*, of course, we are still called to be good stewards). It is harder to do this with mutual funds, though, but can work out, too — maybe someone can start a distributivist mutual fund.

  • Ender

    It is simply wrong to call capitalism greed-based. That there are greedy capitalists doesn’t affect the nature of capitalism any more than pervert priests affect the nature of Catholicism. Capitalism is based on the right of an individual to do as he pleases with what is his, a concept the Church supports.

    (CCC)2211 The political community has a duty to honor the family, to assist it, and to ensure especially: …
    - the right to private property, to free enterprise

  • Eric Pavlat

    Mariana, an interesting view to consider.

    Ender, please re-read my post. I never said capitalism was greed-based.

    –Eric

  • M.Z.

    Buying stocks is a way of owning the means of production collectively — the very core of distributivism.

    No, that is socialism. Distributism is about matching ownership with use. In other words, the people that use the machines are entitled to the surplus value produced by those machines.

    As for the question at hand, do as you will. There are no purity points at stake. The same 10% of folks will still own 80% of the value of the stock market regardless of your choice. http://sociology.ucsc.edu/whor…ealth.html

  • Michael

    Since the mutual fund companies tend to keep the dividends and just sell their product based upon non-guaranteed rises in stock value and the amount of money sloshing around in the large institutional investment houses dwarfs what individuals do they don’t seem particular safe or in control of the small investor. The stock market itself would tend to make most people feel queasy anymore based upon its erratic performance the last number of years. Local credit unions seem more distributist in character but their rates of return on savings accounts are abysmal right now too.

  • Dan

    “No, that is socialism. Distributism is about matching ownership with use. In other words, the people that use the machines are entitled to the surplus value produced by those machines.”

    This sounds a lot like the Marxist idea of the “unpaid labor of the working class” that is, workers deserve the full value produced by their labor and that owners/employers should have no claim to the surplus produced.

    When I was a young man, my father loaned me the money to buy a car. Having a car gave me the flexibility to get a job out of town since no one in town was hiring. Having a job allowed me to pay back the loan with interest and continue working since I still had my car. In investing parlance, you would say that my father bought a bond from me. It was very helpful in getting my career started and I am glad he made me pay the loan back with interest because it helped me to learn to act responsibly.

    This is what investing is…my father invested in me and we were both better off for it. Investing in stocks and bonds creates businesses and jobs for people around the country and around the world and helps many, many people. Giving the investor his due, encourages investment and makes for more businesses and more jobs and is good for society as a whole. Certainly investors should not be greedy…but in a free enterprise system the greedy will usually end up destroying themselves.

  • Jim

    Stock ownership is not really “ownership” but rather more like speculation on the future profits of a company. It’s analogous to placing a bet on a roulette wheel and hoping the “management” hits “the number”. The best example I can give is the difference between owning stock in JP Morgan or owning “shares” in a local credit union.

    With corporate stocks you have no say in the management of a company but rather delegate that by proxy to the board and managers. Distributism is more than just “ownership” – it is also having a say in how things affairs are managed. There is a good post today on the Distributist Review blog that explains this much better than I can. See:

    Mondrag

  • Drago Dragov

    This is why Drago puts all of his money into the horses. Much tastier that way.

  • Jim

    Dan’s comment “Distributism or Marxism” show just how much a deep dark secret Catholic Social Teaching is – especially among Catholics. The pervasive economic thought in the US is “if it’s not capitalism it’s socialism”. This is born out of the false “left-right / conservative -liberal” dichotomy that was ingrained into our psyche as a result of the Cold War and the politics that drove it.

    In fact its neither – its CATHOLICISM

    From Laborem Exercens (no.14):

  • Dan

    Jim,

    My apologies if I am interpreting your post incorrectly, but I do not believe John Paul II to be a Marxist as your title implies. I was only stating that it is a Marxist principle that workers are the only ones who have claim to value produced. The investor/employer/owner also has claim to some of said value. Yes, the worker is part-owner, but so is the investor/owner/employer.

    As an investor, one first aquires property through work. But rather than hide said property “under the mattress” the investor uses it to serve work…he puts it at risk so that others may also benefit from it just as the teaching states. Certainly there is concern that workers not be exploited, but nowhere is it stated that the investor has no claim to any of the value produced by the property he has provided to serve the workers.

    Finally, I am neither a capitalist or a socialist. I believe in free enterprise, that is people freely entering into agreements regarding work, property and the like for it encourages virtue and usually is the best arrangement for everyone involved. Unfortunately, by many measures, we no longer live in a free enterprise system and have not for some time and I think we are starting to see the consequences.

  • Mariana

    Stock ownership is socialism? Under no definition of socialism is this true. Individuals own stocks — not the collective. That is free enterprise.

    You are right in that an individual doesn’t have much effect on the decisions of the board of directors as a majority shareholder does — but they do have influence, if they stop “playing” the stock market as if it were a casino and think of it as investment. Which is what I was trying to advocate — responsible stock ownership. As it is, decisions of the board of directors *do* affect the price of stocks and whether they will rise or fall. The directors are accountable to the shareholders, in that the shareholders will sell if they don’t agree to what is going on.

    Distributism advocates that free enterprise is good — but that all members of society should be able to participate in free enterprise, either through the ownership of land, or other participation in the means of production as more than just a laborer. In England in the early 20th century, this had implications that don’t exist in the US. But the principle is that if individuals and families are paid a living wage — so they can save, invest, buy land — they will have the autonomy to have a daughter with well-kempt hair. Encouraging individuals to invest in companies that help promote these principles is exactly what it is about. The other half is politically frowning on the plutocrats and socialists conspiring to amass power at the hands of a few (whether it is the government or large companies).

  • Matthew Wade

    Dear Mr. Pavlat and others,

    I hope I add something of value to this conversation. I have to first pay a compliment to Jim for so appropriately quoting Pope John Paul II. Laborem Exercens is a fantastic piece of work on the value of…work. One will also find mention of “direct” versus “indirect” employers, which is a timely consideration in our “globalized economy”. I cannot recommend it highly enough as a Saturday (and perhaps Sunday since it’s dense and long) read.

    I’d only like to touch on a couple of points that have already been mentioned by other commentators. Firstly, I would have to agree with Mariana that in essence share ownership does provide each owner with a “vote” (common shares, which are by far the most frequently traded shares on exchanges like NYSE, NASDAQ, and S&P 500). I can see this as being directly in line with Distributist thinking. However, in practice this is almost never the case. (Consider the oft-referenced Mondragon Corporation for an exception to the rule.) The owners of shares are almost never those who do the work of the company in question. It can be said that ESOPs and stock-option based salaries are used in practice, but these are not as widespread as would please any bleeding-heart Distributist. In fact, most shares are owned by large banks and mutual funds – along with a myriad of investment companies – that merely speculate about future profits and buy/sell accordingly. (Wiki any of the various formulae that are used to mathematically derive share prices.) This is so much the case that in fact now the fable of “the law of supply and demand” seems to indicate if not all then at least some of the “prices” of shares. However, to favor the idea of “local credit unions” as models for shares of ownership that are worth something, one must still attend the annual meetings and practice actively in participative-ownership. I worked at a large credit union here in Dallas, and we were able to offer services that were daringly comparable to many large banks in the same area. One must also remember that most large banks are both investment houses and retail banks (bye bye Glass-Stegall) so one’s deposits in banks may be insured by the Federal Government, but one’s money may be put to any myriad of uses that one may not find desirable. With credit unions you have a much more pronounced influence on management and direction, especially since membership is generally geographically limited so that members can become acquainted and familiar with one another.

    I also wanted to touch upon the comment made by Dan. I think your example of lending is a fantastic example of a Distributist ideal, productive lending. (I also believe that this type of lending is in line with Church teaching concerning usury.) However, your illustration doesn’t translate into the equities market very easily. For one thing, as you pointed out, the loan is more like a bond. In fact, this is a loan made for a productive piece of machinery (the car) which serves the purpose of helping another become productive in his own right. Transactions in the stock market are far-removed from this type of lending. Aside from Initial Public Offerings, which do generate funds for newly-public companies, there really isn’t much return provided to companies in terms of productive funds for their own business. Furthermore, it is generally acknowledged that most of the facilitators of IPOs (large banks again) sell newly-issued shares for less than their true “value” in order to gain a piece of the profit pie. One could make several arguments against this point, something along the lines that stock markets increase information in the market; but that information is in fact mainly useful only for the stock market itself so that it’s a circular argument. Moreover, most debt agreements, liens, and pledges (liabilities as opposed to equity) are not tied to stock market measures like prices and returns, but are tied to profit and balance sheet information that aren’t effected by the stock market. So theoretically companies could finance their operations with accumulated capital (profits) and borrowing without recourse to the stock market. This might actually serve to incubate healthy growth instead of wildly speculative business ventures financed with recently minted shares of stock. I hope that this has at least served to shed light on my views of the stock market, which are but the humble views of one man.

    Lastly, Mr. Pavlat you said that bonds are doing terribly. You’ll have to explain that point in more detail. Bonds provide funds for productive ventures to borrowers and steady streams of income to lenders. These are not speculative gambles on the seemingly continuous swing in prices reflected in the stock market; they are prudent loans to responsible borrowers who prefer to repay over a period of time rather than all at once. They may even serve to help some people retire with a somewhat secure income stream. Please consider my viewpoint with the same lenses that see the advantage of local credit unions over large commercial banks.

    I hope my comments are edifying in some way. God bless.

    Sincerely,

    Matthew Wade

  • Joe H

    “As such, is it moral/ethical/proper for a Distributist to own stocks and mutual funds?”

    It is all of those things for anyone, not just Distributists, to make the decisions they think will best secure the financial interests of their family.

    That said, most of the American workforce is shut out of ownership. 80% or 90% of the stock is owned by the top 10% of income earners, I believe. So it isn’t even a practical, let alone an ethical question for the vast majority of people.

    I think a Distributist who has the sort of money to play around with stocks and mutual funds ought to consider ways to put his wealth at the service of well, Distributism. And in my view it is more than just increasing the number of stock owners in society. It is building a community of ownership, in which those who are currently sans property and decision-making power obtain both of these things by way of contracts. This is how we achieve the goal of solidarity.

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