The Outline of Sanity
(Ignatius, 1987) 
This is Chesterton’s main work on his economic ideal, which went under the name of ‘Distributism’. This is a side of Chesterton’s thought to which I have not had much exposure, in part because I am not really interested in (and don’t really understand) economics, and so haven’t sought it out.
Distributism was proposed as an economic “third way” between capitalism and socialism. Chesterton believed that both capitalism and socialism had monopoly as their telos, tending to concentrate ownership and wealth in the hands of a few. Distributism, on the contrary, is a scheme for distributing property and private ownership on as large a scale as possible. Property, Chesterton believed, promoted liberty and was a bulwark to protect the family and private life against the intrusions of the state. In practical terms, the Distributist ideal bears a certain resemblance to a peasant society, each family owning a home and a small plot of land, supporting itself by growing food and plying a trade or running a small business. This resemblance gave Chesterton a clever riposte to the complaint that Distributism is an impossible ideal: on the contrary, he says, it has already been realized in history.
Of course, many other objections spring to mind quite readily, and much of The Outline of Sanity is given over to Chesterton’s attempts to answer them. One criticism is that the Distributist scheme is unstable: even were widespread property ownership realized, the natural dynamics of the market would tend to destroy it. A powerful and intrusive state would be required to maintain the status quo, and this is incompatible with the Distributist idea. But Chesterton counters that in fact a Distributist state on the model of a peasantry could be stable if people were unwilling to sell, if there were a kind of social stigma against forsaking one’s land:
You do not make laws for a peasantry. You make a peasantry; and the peasants make the laws. I do not mean, as will be clear enough when I come to more detailed matters, that laws must not be used for the establishment of a peasantry or even for the protection of it. But I mean that the character of a peasantry does not depend on laws. The character of a peasantry depends on peasants. Men have remained side by side for centuries in their separate and fairly equal farms, without many of them losing their land, without any of them buying up the bulk of the land.
In other words, the Distributist state relies not only on a body of law, but also on a particular kind of citizen: responsible, self-reliant, possessing a sense of pride in his labour, and unwilling to relinquish his way of life for financial gain. His ideal citizens, someone once said, would be “devout Catholics, keen patriots, and heavy drinkers.” You and I may maintain some doubt as to whether this describes our friends and neighbours, but this is Chesterton’s vision.
Another objection is that an economy structured around small-scale family businesses and agriculture could not support large-scale industrialization and all that comes with it. This is quite true, and Chesterton does not try to deny it, but he again counters that the object of economic activity is, or should be, to increase human happiness, not necessarily to increase human wealth or display human ingenuity. It may be best to turn the machines off and shut the refineries down if it results in greater happiness: “If we can make men happier, it does not matter if we make them poorer, it does not matter if we make them less productive, it does not matter if we make them less progressive, in the sense of merely changing their life without increasing their liking for it.” (More.) This objection is true as far as it goes, but again I have some doubt as to how popular such a proposal could be. Charges of “Luddite!” would be flying so thickly that one would have to be careful not to get hit.
The Distributist state is largely static, and so would be anathema to those who, for reasons that I have never quite been able to fathom, believe that the economy must grow every quarter, month, week, and day of the year. Granted, the economy must grow at the same rate as the population in order to maintain the standard of living, but beyond that the constant stress on growth strikes me as bizarre.
All of this is to say that the economic state of affairs proposed by Distributism is vastly different in many respects from the current state of affairs. Even I, who profess a capacious ignorance of the theory and practice of economics, can see that much. Certain things which we currently possess and value would have to be forsaken in order for something like Distributism to be realized. Chesterton is again very candid about this, saying that it would require, especially in the beginning, a spirit of renunciation.
In the economic battle of the titans in the twentieth-century, capitalism has been the big winner, socialism the big loser, and Distributism — well, Distributism has neither won nor lost, because it has not really been tried. In that sense I suppose it has lost. But there are signs here and there that something like Distributism might be gaining some traction. The economic turmoil of the last few years has provoked some to ask whether there might be another way. The backlash against “globalization”, against big corporations, and against factory farming in favour of local, organic foods and family-scale farms and businesses is certainly in the spirit of Distributism. Farmer’s markets are Distributist. The “crunchy conservatives” are tilling a nearby field. These account for only a small ripple in the overall economy, but they are there nonetheless, and I imagine Chesterton would have seen them as a sign of hope.