America's Other Democracy: Politics and Economics At Work


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:

"If 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.

Democracy? 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?

Meanwhile, 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 Human Action, 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 market?

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.

April 3, 2008