• America's Other Democracy

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    Dear Democracy."

    America worships a demigod in our media, legislatures, textbooks
    – broadcasting a one-word message, "Democracy," to
    a near-deaf world. Near-deaf? Why? Well, such worship of democracy
    hasn't always been shared or sought. Hear, for example, the prescient
    speech of Benjamin Disraeli, a young novelist and thinker –
    then a back-bench Tory M.P. but later twice becoming Britain's Prime
    Minister – in the House of Commons, March 31, 1850 (Mencken,
    New Dictionary of Quotations
    , Knopf, 1942, p. 484):

    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.
    [Per Vietnam and Iraq, Dear Reader?] You will in due season find
    your property is less valuable, your freedom less complete."

    ruminate on this corroborative editorial in The London Times
    shortly afterward on February 7, 1852 (ibid., p. 940): "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."

    Dear Reader, let's seek out the political implications of Disraeli's
    prescience and that London Times editorial. Note first how
    earlier thinkers on democracy were like-minded. Plato, for example,
    saw democracy in his Republic (c. 370 B.C., Bartlett's 15th
    ed., p. 85) as "a charming form of government, full of variety
    and disorder, and dispensing a kind of equality to equals and unequals
    alike." Aristotle in his Rhetoric (c. 322 B.C., Mencken, op.
    cit., p. 275) also censured democracy as "when put to the strain,
    grows weak, and is supplanted by oligarchy." So later thinkers
    such as George Bernard Shaw hit democracy in his Maxims for Revolutionists
    (1903, ibid., p. 277) for substituting "election by the incompetent
    many for appointment by the corrupt few." Or as economist Hans-Hermann
    Hoppe at the University of Nevada-Las Vegas, who in his Democracy
    – The God That Failed
    (Transaction, 2001, p. 96), holds
    that "majorities of u2018have-nots' will relentlessly try to enrich
    themselves at the expense of the u2018haves'."

    take account of how America's Founding Fathers themselves suspected
    political democracy of mindless self-extinction for the habit of
    many voters to embrace "factions" or special interests.
    James Madison spoke for his peers in No. 10 of The
    Federalist Papers
    (Mod. Lib. ed., p. 58). Here he worried
    over the lures to a majority to "sacrifice the weaker party
    or an obnoxious individual," adding that "such democracies
    have ever been spectacles of turbulence and contention; have ever
    been found incompatible with personal security or the rights of
    property; and have in general been as short in their lives as they
    have been violent in their deaths."

    wonder the very word democracy is missing throughout the entire
    Declaration of Independence, Constitution, and Bill of Rights. Indeed,
    note how sternly anti-democratic are the first five words of the
    First Amendment on matters of abridging religion, speech, press,
    assembly, and petition: "Congress shall pass no law …. "
    Repeat, "pass no law." So Ben Franklin, asked outside
    Independence Hall what kind of state the Fathers produced, replied
    with a famous proviso, "A republic, if you can keep it."
    Big if. I think Old Ben was warning us:

    political democracy grows the individual shrinks.

    – voil – see how Austrian economist Ludwig von Mises
    lit up an unknown yet safe and highly effective daily democracy.
    In 1922 in his book Socialism
    he saw it at work in our vast marketplace. See it around you today:
    from the shopping mall to online buying to ordering by telephone
    to getting cigarettes from a vending machine to filling up at the
    gas pump by credit card to business consumers ordering supplies
    for their operations. So do all these market voters vote, as a rule,
    not but every other year but again and again every day. Check Socialism
    (Liberty Classics, 1981, p. 11), which gives such democracy a crucially-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." Democracy? Voting daily,
    hourly, or even more often than that? Exactly. Mises stood on solid

    just what is political democracy? Well, check its Greek roots: rule
    or "kratia" by the people, the "demos." But
    see the mean politics of Big Government today and ask: Who rules
    whom? Why do state hegemony and intervention, deficit finance and
    shady politics, reign if not rage today as near givens in America
    and over the democratic West, why does the free individual fade,
    how come inflation (of money and credit) ever bites into the value
    of currencies across the globe (in the U.S. M.D.s charged $2 for
    an office visit, $3 a home visit in 1930 when I was growing up in
    Jersey City (today an office visit can cost $80), when a first-class
    stamp cost two cents but 37 cents now , when a N.Y.C. subway ride
    cost a nickel but now $2, when I worked at the A&P for the minimum
    hourly wage of 25 cents (if I now curse the very idea of a minimum
    wage)? And, why does our very political majoritarianism tend to
    divide or even polarize society – us vs. them, them vs. us
    – so graphically on view in the late unlamented 2004 presidential

    I say "Three Cheers" for free capitalism, private property
    rights, the Mises market democracy, all punished and deeply misunderstood
    today, yet still the very fount of our wellbeing and employment.
    Hope then that in the heat of current debate of what passes for
    public policy, market democracy will be reborn, rethought, and reinforced.
    Note its basis in equal rights (so unequal today) and a limited
    state (so unlimited today). Note how it stars entrepreneurs with
    their private tools of production of goods and services, how they're
    ever goaded by competition to ply consumers with more for less,
    how fallible executives, when exposed (Enron, Tyco, etc.), get hit
    far faster by the stock market than by the courts or the Securities
    and Exchange Commission. For firms are led by and, if need be, democratically
    punished by their customers, by their, said Mises, "sovereign
    consumers" everywhere. Note their make-or-break "orders"
    (what a word) and their key price signals of "demand"
    (again, what a word). So market democracy enthrones you, Mr./Ms.
    Consumer, or for another metaphor, puts you in the driver's seat.

    then, thanks to rabid state interventionism, our berated, underrated,
    much overregulated and overtaxed, much misread and misapplied, capitalism?
    Yet isn't it still, per our Founders (though capitalism as a word
    had yet to be coined by Karl Marx) a royal road to social cooperation,
    a vast vital network of private governments of the people, by the
    people, for the people, all via much-used withdrawable individual

    A key to liberty. For in a free society are countless hierarchies
    of power, governances such as The New York Times, Harvard,
    New York Stock Exchange, Microsoft, Southern Baptists, Salvation
    Army, Wal-Mart and some 25 million other firms, farms and organizations;
    yet all are totally dependent on withdrawable individual assent.
    So you can switch from GM to Ford, from Yale to MIT, from Burger
    King to McDonald's. And vice versa. Talk of democracy! Of your decisive
    market freedom to choose.

    anyone? Yes. But which one? For isn't today's political democracy
    a shield for a Pax Americana for democratizing a sinful globe, with
    the focus now on the raging undemocratic Middle East? But doesn't
    this serve up Jouvenel's classic riddle (74 AD): Sed quis custodiet
    ipsos custodes? (But who is to guard the guards themselves?) Thomas
    Paine saw the fix in 1776 in his Common
    as "a necessary evil."

    wonder Bismarck likened the legislative process to the unsightly
    conversion of pigs into sausages. Or per Churchill, democracy is
    the least awful way to effect a peaceful change of political power.
    Or per Mencken, an election amounts to an advance auction of stolen
    goods. Or held Swiss thinker Felix Somary 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."

    let me, Dear Reader, juxtapose America's Political Democracy with
    the Mises idea of Consumer Democracy to clarify which is which,
    and ask you – with both democracies needful of repairs –
    which needs the most by far?

    In one democracy you vote only 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
    – in a sense, one on one – for specific vendors, goods,
    or services, in an endless plebiscite that goes on every minute
    of every day, with dollars as ballots. Yes, some get more ballots
    than others. Yet Mises saw this outcome as mostly passing, as consumers
    themselves vote "poor people rich and rich people poor"
    , Yale University Press, 1949, p. 270).

    one democracy is public, the other private. One, unequipped with
    what Mises called "economic calculation," hires no profit-and-loss
    bean counters and so funds failing programs and choiceless public
    schools, the other, equipped with economic calculation, does hire
    bean counters and lets failing firms and weak private schools fail,
    as sovereign consumers withdraw their life support. One democracy
    is coercive and centralized, the other voluntary and decentralized.
    One runs, inadvertently, a growth-impeding win-lose zero-sum game,
    the other, also inadvertently, runs a pro-growth win-win positive-sum
    game. This difference, alone, sets America's future, likely including
    your own.

    democracy runs by politics and legal monopoly (such as public schools,
    Social Security, Medicare, U.S. Postal Service, and the Federal
    Reserve central bank). Yes, people in this democracy do vote periodically,
    if unmindful of Henry David Thoreau's Civil
    of 1849. Thoreau saw "little virtue in
    the action of masses of men" and voting as "a sort of
    gaming." The other also votes but far more often and directly
    as it runs a consumer democracy by market economics and competition.
    One democracy forgets the individual, per Yale's William Graham
    Sumner's famed "The Forgotten Man" public lecture in 1883,
    the other remembers him/her most accountably if not beholdenly (if
    imperfectly per that spam in your PC).

    democracy seeks legal plunder and plays incumbency ruses: compromises
    with principle, gerrymandering, log-rolling, grandstanding, warmongering,
    free-lunch guises such as big federal "grants" (bribes?)
    to states and localities ($352 billion, annualized, 2nd
    qtr., 2004), the other is cleansed by competition and cost-cutting
    – by demonstrated producer actions aimed at pleasing consumers,
    in Milton Friedman's phrase, free to choose.

    democracy veers to electioneering, an amoral short run, the other
    to moral contracts and the longer run. One, armed 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 sometimes slip into corporate misbehavior – sly ways of
    manipulating money or getting into bed with political power to win
    anti-consumer import quotas, subsidies, special tax relief and other
    mischief via special interests, despite President Eisenhower's 1961
    farewell warning against a "military-industrial complex."

    democracy glorifies 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 One, naïvely, as "The War to End
    War" and "Make the World Safe for Democracy." Some
    democracy! Reaping 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, Chavez in Venezuela, Mugabe in Zimbabwe, with
    lesser imitators throughout Asia, Africa, Central Europe, Latin
    America, and the Middle East. Yet the U.S. still seeks to "democratize"
    the turbulent Middle East, citing Japan and Germany as post-World
    War II successes, yet remaining silent on failures such as North
    Korea, Vietnam, Bosnia, Somalia, Kosovo, and Haiti (the Clinton
    military action there gamely tagged as "Operation Democracy").

    democracy rues income disparity and, like Robin Hood, "transfers"
    wealth, the other, per John F. Kennedy launching a big across-the-board
    tax cut in 1962, "lifts all boats." One denies itself
    crucial market feedback data, or, again, what Mises called "economic
    calculation," predicting in 1920 the ultimate implosion 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, if under a moral code
    and the rule of law, it does so spontaneously, harmoniously, constructively,
    as Hayek abundantly demonstrated.

    democracy tends to divide or even polarize the people and works
    the dubious rule of winner-take-all, sometimes touching off revolution
    or war. The other is inherently peaceful and explains the success
    of the West via the Adam Smith "invisible hand" idea of
    sharing self-interest in a system of "natural liberty,"
    of self-help by helping others, including the poor or per his famed
    line in The
    Wealth of Nations
    (1776, Mod. Lib. 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 capitalism or market democracy is
    far and away our greatest, most hopeful democracy. Yet this friendly
    peace-inducing democracy is, as such, nearly unknown, invisible,
    and, because it's driven by "evil" profits, frowned upon
    here and abroad.

    facing us are three challenges: Challenge One, can we free up our
    market democracy from the tightening binds of preemptive heavy taxation,
    regulation, and power grab, to bring it into broad public grasp,
    approval, and esteem? Challenge Two, can we use America's second
    democracy to widen individual freedom and help tame or relimit political
    democracy la our Founding Fathers in 1776? And Challenge Three,
    will we welsh on what freedom remains and let political democracy
    with its latent authoritarianism go the way it did in Ancient Greece?

    there's a better way, a far freer way, the way of IBM's Thomas J.
    Watson and his motto of "World Peace Though World Trade,"
    the Mises way of Consumer Democracy.

    it power to the people or, better, America's Other Democracy.

    5, 2004

    Peterson [send him mail],
    studied under Mises at NYU in 1950–1969 and taught economics at
    NYU, is an adjunct scholar at the Mises
    . Above, largely drawn from his article in the December
    2003 Free
    is the introduction to his book in progress, Letter
    to Mr./Ms. America: Re Our Other Democracy — The Vital, Vibrant
    One Coordinating Choice and Change.

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