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Volume 23, Number 12
William H. Peterson
The democracy of the market is not the democracy that Plato spoke of in his Republic (c. 370 BC) as "a charming form of government, full of variety and disorder, and dispensing a kind of equality to equals and unequals alike," nor that Aristotle in his Rhetoric (c. 322 BC) chided as "when put to the strain, grows weak, and is supplanted by oligarchy." It is not that which George Bernard Shaw taxed in his Maxims for Revolutionists (1903) as substituting "election by the incompetent many for appointment by the corrupt few," nor that Hans-Hermann Hoppe exposes in his Democracy—The God That Failed (Transaction, 2001, p. 96) that "majorities of ‘have-nots’ will relentlessly try to enrich themselves at the expense of the ‘haves’."
For see how Ludwig Mises lit up a near-unknown yet highly effective daily democracy—the marketplace—in his Socialism (Liberty Classics, 1981, p. 11), giving this democracy a critically needed political dimension today. As Mises wrote: "When we call a capitalist society a consumers’ democracy we mean that the power to dispose of the means of production, which belongs to the entrepreneurs and capitalists, can only be acquired by means of the consumers’ ballot, held daily in the marketplace."
Mises was on solid ground. For what is political democracy? See its Greek derivation: rule or "kratia" by the people, the "demos." But who rules whom? Why do state hegemony and interventionism reign today as givens, why does the free individual fade across the West, why does political majoritarianism divide society?
So I say capitalism, so harassed today, should be especially thought through and guarded in the heat of current debate. Note its basis in private property, equal rights, a limited state (so unlimited today). Note it stars entrepreneurs with their private tools of production of goods and services. Note how its fallible CEOs (Enron, Tyco, etc.) get quickly whipped by the stock market, far faster than by the courts or the Securities and Exchange Commission. For firms are democratically led and, if need be, punished, by their customers—i.e., said Mises, by sovereign consumers everywhere with their make-or-break "orders" (what a word!) and their key market price signals.
Whither then our berated, underrated, far overregulated and much misread capitalism? Yet isn’t it still, per our Founders (though the word capitalism had yet to be coined), a royal road to social cooperation, a vital private network of governments of the people, by the people, for the people, all with individual assent—highly-used withdrawable assent?
Withdrawable? Consider in a free society, countless hierarchies of governance of power, such as the New York Times, Harvard, New York Stock Exchange, Microsoft, the Southern Baptists, the Salvation Army, Wal-Mart and some 25 million other firms, farms and organizations; yet all are totally dependent on that withdrawable individual assent. So you’re free to switch from GM to Ford, from Yale to MIT, from Burger King to McDonald’s. And vice versa. Talk about democracy!
Democracy? But isn’t this our political shield for a Pax Americana to police a sinful, quite undemocratic globe, with the focus now on the turbulent undemocratic Middle East? But doesn’t this serve up de Jouvenel’s classic conundrum (74 AD): Sed quis custodiet ipsos custodes (But who is to guard the guards themselves?) Thomas Paine saw this snag in 1776 in Common Sense as "a necessary evil."
Bismarck likened the legislative process to the unsightly conversion of pigs into sausages. Churchill said democracy is the least awful way to effect a peaceful change of political power. Or as Swiss thinker Felix Somary held in his Democracy at Bay (Knopf, 1952, p. 6): Political democracy blends two "fictions," one the idea that "an entire people can assume sovereignty," the other the idea of "the innate goodness of man."
So I juxtapose below America’s Political Democracy with the Misesian point of our Consumer Democracy to clarify which is which—and ask you, with both needful of repairs, which needs the most by far?
In one democracy you vote but every other year for candidates (who may not win) to "represent" you and many others indirectly on myriad issues. In the other, you vote daily, often, directly, for specific vendors, goods, or services, in an endless plebiscite going on every minute of every day, with dollars as ballots. To be sure, some get more ballots than others. Yet Mises saw this outcome as transient, as consumers themselves vote "poor people rich and rich people poor" (Human Action, Yale University Press, 1949, p. 270).
So one democracy is public, the other private. One funds failing programs and schools, the other lets failing firms and private schools fail. One is coercive and centralized, the other voluntary and decentralized. One runs, inadvertently, a growth-impeding win-lose zero-sum game, the other, also inadvertently, a pro-growth win-win positive-sum game. This difference, alone, sets America’s future.
One democracy runs by politics and monopoly, unmindful of Henry David Thoreau’s Civil Disobedience of 1849 when he saw "little virtue in the action of masses of men" and voting as "a sort of gaming;" the other runs a market society by economics and competition. One forgets the individual, per William Graham Sumner’s famed "The Forgotten Man" lecture in 1883, the other remembers him/her (imperfectly per that spam on your PC monitor).
One democracy plays incumbency ruses: compromises with principle, gerrymandering, log-rolling, warmongering, free-lunch guises such as big federal "grants" (bribes?) to states and localities ($313 billion, annualized, 1st qtr., 2003), the other is cleansed by competition, cost-cutting, demonstrated market deeds for consumers free to choose.
One democracy veers to the Machiavellian amoral short run in aim, the other to moral contracts and the longer run. One, with coercive power, yields to Acton’s law that power tends to corrupt and absolute power corrupts absolutely. Yet the other, if gloriously voluntaristic, can and does slip into some corporate behavior—money-grasping or getting into bed with political power to win subsidies, import quotas, and other mischief via special interests—despite President Dwight Eisenhower’s 1961 farewell message against a "military-industrial complex."
One democracy can glorify war, including class warfare, the other glorifies peaceful trade in a virtual global concordance on private property rights (if widely derided as "globalization")—per IBM’s old motto of "World Peace Through World Trade."
One entered World War I, naïvely, as "The War to End War" and "Make the World Safe for Democracy"—only to reap Lenin and Stalin in Russia, Hitler in Germany, Mussolini in Italy, Franco in Spain, Tojo in Japan, Tito in Yugoslavia, Mao in China, Peron in Argentina, Castro in Cuba, Allende in Chile, Pol Pot in Cambodia, and lesser imitators throughout Asia, Africa, Central Europe, Latin America, and the Middle East. President Bush II seeks to "democratize" an entire region while citing Germany and Japan as post-World War II successes, but he remains silent on our failures like North Korea, Vietnam, Bosnia, Somalia, Haiti (this gamely tagged as "Operation Democracy").
One democracy rues income disparity and, like Robin Hood, "transfers" wealth, the other lifts all boats. One denies itself crucial feedback information—or what Mises called "economic calculation," predicting in 1920 the ultimate collapse of socialism à la the USSR—the other uses that calculation to help allocate limited resources to their perceived optimum market uses. One wastes capital and talent (human capital), the other saves and invests it, self-interestedly, yes—yet, when under a moral code and the rule of law—spontaneously, harmoniously, constructively.
Market democracy explains the success of the West via Adam Smith’s "invisible hand" idea of self-interest in a system of "natural liberty," of self-help by helping others, or per his famed line in Wealth of Nations (1776, Modern Library ed., p. 14): "It is not from the benevolence of the butcher, or the brewer, or the baker that we expect our dinner, but from their regard of their own interest."
No question then that capitalism or a market society is America’s greatest democracy. The question is: Can we tame political democracy à la our Founding Fathers in 1776 or will we allow it to devour us per Ancient Greece?
William H. Peterson, who studied under Mises at NYU in 1950–1969 and taught economics at New York University, is an adjunct scholar at the Mises Institute (firstname.lastname@example.org).