FOUNDATION FOR ECONOMIC EDUCATION - Axel Weber - DEC 15, 2022
Democracy is in danger! Or at least that’s what politicians and pundits would have us believe. While this rhetoric is hyperbolic (which is typical in political discourse), in at least one sense they’re right.
When politicians invoke democracy today, they mean popular participation in big government: specifically through voting. But this wasn’t always the prevailing meaning of the term.
For example, in Alexis de Tocqueville’s Democracy in America—a definitive classic on the subject—democracy meant more than that.
During his trip to America, Tocqueville was astonished by the number of associations he encountered; how locals would voluntarily group together to accomplish large tasks such as building hospitals, churches, and schools. For Tocqueville, such free association in non-state civil society was a key part of democracy and served as an important bulwark against the potential tyranny of a democratically-elected state.
What Tocqueville meant by democracy was less about appointing government officials and more about society coming together to overcome the challenges of life together. He interpreted democracy as a grassroots phenomenon, with people governing their own affairs.
However, Tocqueville feared that democracy might one day pose a threat to liberty instead of preserving it. “There are many people nowadays,” he wrote, “who adjust quite easily to a compromise [...]between administrative despotism and popular sovereignty and who believe that they have done so to guarantee the liberty of individuals when in fact they have surrendered that liberty to the national government.”
Tocqueville warned of the “omnipotence of the majority” as a form of “soft despotism,” or “democratic despotism.”
Democratic despotism is not only different from Tocquevellian democracy, but is also at odds with it. For instance, it created the welfare state, which crowds out those same local churches and voluntary charities that had so impressed Tocqueville.
While the welfare state was meant to reduce hardship, it ended up infantilizing all it touched. Worse still, by offloading the responsibility of the community into the hands of the federal government, the welfare state has steadily been destroying communities and isolating individuals.
This expansion of government responsibility required a swelling of state power. It is no coincidence that this gross expansion of power coincides directly with political polarization, increased lobbying, and more crony capitalism.
On the one hand, Tocquevillian democracy strengthened societal bonds and fostered closer communities by enabling individuals to work together to overcome challenges. On the other hand, democratic despotism has divided the nation, devastated communities, and weakened our country’s moral fiber.
One need only contrast the vitriolic anger and hatred spawned by democratic despotism with the peaceful association and mutual cooperation of Tocquevillian democracy to see which is better for society.
Democratic despotism corrodes not just civil society, but also another important aspect of democracy: the democracy of the market.
How is the market a democracy? In political democracy, votes represent popular support of a party, candidate, or law. Similarly, in the market democracy (i.e., capitalism), money spent represents an endorsement of a business, producer, and/or product.
As economist Ludwig von Mises explained:
“The consumers, not the entrepreneurs, pay ultimately the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent the consumers determine the direction of all production processes and the details of the organization of all business activities. This state of affairs has been described by calling the market a democracy in which every penny gives a right to cast a ballot.”
Ultimately, it is the consumers who determine which businesses rise and fall. Google can only remain at the top as long as its users are happy with their services and continue to vote for it by using it over other search engines. If a competing platform offers a better service, it will quickly leave Google in the dust, as Google did with Yahoo.
The market democracy is also more equitable than political democracy. “In the political democracy,” Mises wrote, “only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence policies. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes.”
No longer are minority desires overridden by the majority. Both are able to impact production simultaneously, just to different degrees. For example, if one wishes to support environmentally conscious companies, one can do so without preventing or taking away from another’s ability to support a different business.
In political democracies, this is quite literally impossible: only one view can prevail. Political democracy is a winner-take-all game in terms of representation. But in a market democracy, every dollar gets its due, allowing a wider range of tastes and preferences to coexist and flourish.
But how can the market democracy be fair? After all, the rich would have far more “voting” power than the poor. “It is true,” Mises explains, “in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way.”
When considering the fairness of the market democracy, it is important to understand that poverty is the natural state of humankind. At the very least, market democracy allows any individual, regardless of origins, to rise to the top by providing a valuable service to society. Contrast this with the fact that in political democracies, the individuals who rise to the top do so through demagogic speeches filled with empty platitudes and promises.
Thus, capitalism is the ultimate expression of a society's choices and an integral aspect of democracy that better represents the sovereignty of the individual. Yet, democratic despotism insists on overriding the democratic results of the individuals voting in the market by, for instance, intervening in the market.
Since “dollar votes” in the market democracy are acquired by creating value for others in society, market interventions are a form of voter suppression and fraud. Interventions presume that the intervening bureaucrat knows what is best for society, which is in direct contradiction with market democracy. This would be akin to forcing voters to vote for a party because it’s “in their best interest,” or preventing some voters from supporting “the wrong side.” In short, the more political democracy decides what businesses do, the less consumer preferences and votes matter. This transfers power from the people to an elite few.
Big Government Democracy
It is a painful twist of irony, that, in the name of “democracy,” big government is attacking civil society and capitalism, and thus making society less democratic. The actions of big government are antithetical to actually representing the people. Tocquevillian democracy gives individuals their communal voice, while Misesian democracy gives them their economic voice. It is democratic despotism that silences the voice of the people.
To restore American democracy, we must free our communities and our markets.
Axel Weber is a fellow with FEE's Henry Hazlitt Project for Educational Journalism and member of the PolicyEd team at the Hoover Institution. He holds a Bachelor of Science in Economics from the University of Connecticut.