America's Other Democracy: Politics and Economics At Work

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Does America
one-sidedly worship a political demigod in our media, legislatures,
and textbooks — i.e., a narrowly-viewed Democracy, one somewhat
silent on its widespread special-interests power, yet far more silent
on its vast market democratization from Main Street to Wall Street,
from Wal-Mart to Tiffany’s? Imagine, an endless 24/7 market plebiscite
on the supply side, the workhorse for the bulk of our Gross Domestic
Product (GDP). Still, our market democracy is but dimly seen, dimly
grasped, dimly admired. Why?

Partly because
American democracy is in a sense dichotomous: Ours is both a public
and a private society, both a political democracy and a market democracy.
Yet we are still the one and the same people whose market democracy
votes are very often crossed by political democracy. Again, why?

For perspective,
read the prescient speech on political democracy by Benjamin Disraeli,
young novelist, thinker, and back-bench Tory M.P. (later twice British
Prime Minister) in the House of Commons, March 31, 1850:

you establish a democracy, you must in due time reap the fruits
of democracy. You will in due season have great impatience of
the public burdens, combined in due season with great increase
of public expenditure. You will in due season have wars entered
into from passion and not from reason; and you will in due season
submit to peace ignominiously sought and ignominiously obtained,
which will diminish your authority and perhaps endanger your independence."

Or note the
related ageless editorial on democratic and other politics in
The London Times, February 7, 1852: "Concealment, evasion,
factious combinations, the surrender of convictions to party objects,
and the systematic pursuit of expediency are things of daily occurrence
among men of the highest character, once embarked in the contentions
of political life."

Thus does our
political democracy tend to give way to what Milton Friedman called
the tyranny of the status quo (or what I call the statist
quo). This quo is geared to exploit the exploitable — you and your
fellow citizens caught in a fix of today’s winner-takes-all majoritarianism,
of heavy taxation, of currently a crisis of economic slowdown and
possible recession.

Time then seems
ripe for a tax cut la those of the 1960s and 1980s. President
John F. Kennedy sold the case to nation and Congress for a near
20 percent across-the-board tax cut, getting off the memorable line,
“A rising tide lifts all boats.” President Lyndon B. Johnson signed
the cut into law, following the Kennedy assassination. The cut worked.
Output advanced, unemployment fell from close to 6 percent to under
4 percent.

In the 1980s
came the Supply-Siders, led by Paul Craig Roberts and Arthur Laffer
(of Laffer Curve fame). Their point was to augment the Fed’s move
to end the recession. They would cut marginal tax rates so to expand
aggregate supply. They drew inspiration from 19th-century French
economist Jean Baptiste Say whose Say’s Law held that supply creates
aggregate demand. The theory worked as Congress cut 14 marginal
tax brackets to but three — 15, 28, and 33 percent. So during the
two terms of President Ronald Reagan the top marginal U.S. rate
was cut by more than half, from 70 percent to 33 percent.

More history.
Plainly our Framers were no friends of political democracy. Note
the very word "democracy" is nowhere to be found in the
Declaration of Independence, Constitution, and Bill of Rights. And
notice how sternly anti-democratic are the first five words
of the First Amendment on bills abridging religion, speech, press,
assembly, and petition: "Congress shall pass no law …. "
Repeat, "no law."

Hence Ben Franklin,
asked outside Independence Hall what kind of state the Framers had
provided, replied with a famous proviso: "A republic — if you
can keep it." Big if. I think Old Ben was warning us: As political
democracy ensues — as it has — the individual shrinks and our workhorse
becomes at times wan and wobbly. I agree with Old Ben: A limited
— repeat, limited — republic is the way to go.

So Austrian
economist Ludwig von Mises sought to light up a practically unseen
if not unrealized, yet highly effective direct daily democracy.
In 1922 in his Socialism
he saw it in around-the-clock market action. I.e., such ensues as
Americans today vote their after-tax money over and over, as they
buy or reject goods and services in today’s supermarket, healthcare
center, shopping mall, order by phone, trade stocks and bonds online,
get colas at vending machines, cash at ATMs, fill up at gas pump
by credit-or-debit cards, or, importantly, as American business
in their own consumer capacity order bank credit, supplies, equipment,
manpower, brainpower, and land-office-factory space for their operations.

Thus consumers
vote not but every other year as in federal elections but again
and again every day, a democracy featuring a 100 percent daily turnout
compared to but something in the 50 percent range in federal elections.
Recall President Calvin Coolidge sensing the vastness of what goes
on in the market process when he told the American Society of Newspaper
Editors in 1925: “The chief business of the American people is business.”

So Mises sought
to give market democracy a political edge via popular and intellectual
perception, public recognition, or as he put it in Socialism:
“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
thus promoted this system of voluntary daily market democracy as
a victory of “consumer sovereignty,” of broad-based “social cooperation.”

Note vital
legal underpinnings of such market democracy in our Founding Fathers
heritage of habeas corpus, the rule of law, a bill of rights, and
other checks-and-balances limits on political democracy. But these
limits have since broken down, in large part due to the 16th (income
tax) and 17th (direct election of U. S. senators) constitutional
amendments, both passed in 1913, both tilting toward political democracy,
both further centralizing political power in Washington.

Check its Greek roots: rule or “kratia,” by the people or “demos.”
But ask today in Washington or your state capital if not your city
hall: Who rules whom? How come politics gets to advance one intervention
after another? Why ever-mounting government hegemony: interventionism
(including the Fed’s bailout of Bear Sterns), deficit finance, welfare-warfare,
bureaucracy, regulationism, special interests, and high progressive
income taxation persisting in America, while flat income tax systems
bloom in the world including Ireland — the new Switzerland of Europe
— and even, of all countries, Russia, with a flat income tax at
but 13 percent?

the world veers toward more globalization and relatively less international
tension via freer trade and international investment, judging from
the well subtitled 2008
Index of Economic Freedom: The Link Between Economic Opportunity
and Prosperity
just published by the Heritage Foundation
and the Wall Street Journal, with one of its editors, Edwin J. Feulner,
head of the Heritage Foundation, saying in the preface that economic
freedom — read market democracy — gives birth to “a virtuous cycle
of entrepreneurship, innovation, and sustained economic growth.”

That growth
is, again, under the watchful eye — and control — of consumers.
Entrepreneurs and capitalists may think they control production,
that they are at the helm and steer the ship. Wrote Mises in his
, 1949: “A superficial observer would believe that
[entrepreneurs and capitalists] are supreme. But they are not. They
are bound to obey unconditionally the captain’s orders. The captain
is the consumer.” So the Mises idea of consumer sovereignty. By
buying this, rejecting that, consumers become, if not absolute,
king-and-queen of market democracy. They in effect run the show,
have the last word.

So I trust
— in the heat of current debate on economic policy and in the throes
of what could be oncoming recession — that the actuality of market
democracy, of free markets, free minds, free trade, and private
property rights in action can be reborn, rethought, and reinforced.
Market democracy — i.e., again, economic freedom here and abroad,
not economic isolationism and protectionism — is the key to prosperity
and peace. Or as Thomas J. Watson, founder and head of IBM, long
put it: “World Peace Through World Trade.”

It follows
that protectionism boomerangs on the otherwise sovereign consumer,
denying the consumer full freedom to trade. Witness the Clinton-Obama
verbal assault on the North American Free Trade Agreement causing
roiling reaction in Canada and Mexico. So doesn’t protectionism
and Big Government spell loss of economic rights, in a way disenfranchising
more and more people from their giant other democracy, the free

Free trade
and free investment here and abroad are key parts of the global
marketplace in action, a vast positive-sum game in which you, Mr./Ms.
Consumer, are broadly a daily player and winner. See then our giant
marketplace whose renewal and reinvigoration via popular education
and a supply-side tax cut could pave a way back to economic regrowth
and resurgence, a way to beat back a recession which seems to be
closing in.

The trick then
is to spot this pressing problem of widespread imperception vs.
perception. The idea is to broadly comprehend, publicly recognize,
and hail loud and clear this vast consumer-dominated market democracy
— so that it is no longer neither widely understood nor much appreciated.

3, 2008

Peterson [send him mail],
a longtime contributor to the Wall Street Journal, won the
2005 Schlarbaum Prize for Lifetime Achievement in the Study of Liberty
given by the Ludwig von Mises Institute of Auburn, Alabama.

H. Peterson Archives

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