The midterm elections are over and the citizens of the U.S. can lean back, relax and watch helplessly what their representatives on Capitol Hill will do with the powers delegated to them. In economic terms, the principals chose their agents and are now totally at the respective agent's mercy (for an introduction see Pratt & Zeckhauser [1991]). For those who believe in liberalism the question arises, why a representative democracy is necessary. I mean why can the relevant political issues not only be discussed but also decided not on behalf of the people but by the people? Looking back in history could answer this question:

In ancient democracies like Athens or Rome the assembly of the people (consilium plebis or comitia tributa populi) was the body to debate political issues and to decide. Even in our days we have a few societies, where a general assembly decides, e.g. the Landsgemeinde in the Swiss cantons of Appenzell and Glarus as per 11/1/02). The right to speak and vote in this assembly in ancient times was restricted to full citizenship, which only polites in Greece or the cives in Rome had. As time went by it became simply impossible for the electorate to assemble physically, simply a matter of size. Gathering 10,000 or more people was impossible to handle. So the general assembly of the people remained but officers were elected to deal with every-day business, later a senate or a similar body was elected; the rights of the people were guaranteed by the elected tribuni plebis which could veto each bill of the roman senate. Let aside the centuries of monarchies and dictatorships and focus on the Founding Fathers. They were well aware of the impossibility of gathering all the citizens of the U.S. and invented our current system of President, House, Supreme Court and all the other things carefully constructed within the systems of Checks and Balances, thereby hoping that no single man could become too powerful. The principle of the division of power, invented by Montesquieu, should guarantee this.

Now, in our days, things changed and nobody seems to notice: Technology gives us the chance to reinstall the general assembly of the citizens. Not in person, but Internet technology enables us to take away decisive rights from the representatives of the people and let the people themselves decide. Let me illustrate this in a simple model:

Given Internet access of a significant part of the citizens (at least a higher proportion than actually participating in elections), we could easily establish a system, which enables electronic elections as well as a referendum on any issue. The technical and organizational problems have been solved and safe algorithms exist (see Prosser & Müller-Török [2002]). The prerequisites necessary are

1. A central registry of voters, which could easily be established
2. A common existing service like electronic signature and a Trust Centers
3. Access to the Internet either via workplace or private Personal Computer

It is obvious that we cannot expect the hard working citizens of the U.S., especially those engaged in private business, to sit on their computer each day and decide on bills which contain hundred of pages. But we could easily establish

• A mandatory referendum on the federal budget or any issue exceeding a specified amount of public spending
• A mandatory referendum on issues of real importance, e.g. whether the President should be allowed to take military action against another state
• The right of a certain number of people (I would propose 10%) to veto each bill and call for a nation-wide referendum on it. 10% of the voters sounds much, but is quite easy to achieve in the Internet, if you compare it e.g. with the masses of people surfing the web daily.

I am well aware of the fact that such a change in the constitution needs discussion and some time before coming into effect. But as an Austrian Economist I am convinced that this is the right way of bringing the power back to the people and restraining representatives. Or, in economic terms, increase the probability of detecting the agent's cheating on the principal and making him do what the principal really wants. I mean, we do not give our money to banks and tell them "Do whatever you want with my money, I will do nothing for 4 years and tell you then whether you may manage it for another 4 years." So why should we do this with politicians?

Pratt, J.W. und Zeckhauser, R.J. (Hrsg.): Principals and Agents: The Structure of Business; Harvard Business School Press, Boston, 1991

Prosser, A., Müller-Török, R.: E-Democracy: Machbarkeit und Auswirkungen; Wirtschaftsinformatik 6/2002, Vieweg-Verlag, Braunschweig 2002.

November 13, 2002