Conservative Colloquium

An Intellectual Forum for All Things Conservative

Democracy as a Form of Capitalism (and vice versa)

Posted by Tony Listi on March 5, 2008

It is no coincidence that democracy (or democratic republicanism to be precise) and capitalism have been joined at the hip throughout history, especially in the West. Democracy is the political formulation of capitalism; capitalism is the economic formulation of democracy. They arose together and they will fall together.

Whether one is talking about politics or economics, the key fundamental question will always be: who is in control? Who has the power? And there will always be only two possible answers to this question: either many people have power or very few have power.

In a democracy, many people have power. They vote in elections and choose their leaders or approve legislation be referendum. Power is diffuse and divided among all the people. There is accountability: government officials who do not serve well are replaced by someone else at the next election. In all other forms of government, power is more concentrated because it is in fewer hands, and they are the hands of government officials or those who can control government officials.

Under free market capitalism too, many people have power rather than a few. Consumers (which is all of us) have the freedom of choice to buy something or not. Similar to political power in a democracy, economic power under capitalism is diffuse and divided among all consumers. Like democratically elected officials who must satisfy their constituents, producers (from small businesses to corporations) who want to prosper must meet the needs and desires of consumers. In all other economic systems (e.g. socialism), those with political power (or just the power of the sword in general) seize the economic power and freedom of the people and dictate production (i.e. quotas) and consumption (i.e. rationing) to the rest of society, just as a tyrant would dictate laws to his subjects.

The common denominator between democracy and capitalism is freedom, freedom from centralized power and control. What many Americans don’t seem to realize is that political freedom and economic freedom cannot be separated. In order to take away your economic freedom to give you a false sense of economic security, the government necessarily usurps more political power to itself as well so that it can actually be able to enforce its economic dictates. The equalizers are never equal in political power to those they equalize. This means less political power for you. Power is a zero sum game; there is only so much political power to go around, so that one person’s gain is another’s loss. But wealth is not a zero sum game; the pie can grow under a system of freedom, so that one person’s slice is not at another’s expense because value is always being voluntarily exchanged.

Thus political and economic freedom are intimately intertwined and thus inseparable. So don’t believe liberal Democrats when they tell you that you will have more freedom or security with more government intervention and mangement of the economy. You will have neither freedom nor security: freedom is our security because freedom allows for accountability through checks and balances.

I would like to end with the wisdom of Milton Friedman:

“Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised. In addition, by dispersing power, the free market provides an offset to whatever concentration of power may arise. The combination of economic and political power in the same hands is a sure recipe for tyranny. The combination of economic and political freedom produced a golden age in both Great Britain and the United States in the nineteeth century.”

“Majority rule is a necessary and desirable expedient. It is, however, very different from the kind of freedom you have when you shop at a supermarket. When you enter the voting booth once a year, you almost always vote for a package rather than for specific items. If you are in the majority, you will at best get both the items you favored and the ones you opposed but regarded as on balance less important. Generally, you end up with something different from what you thought you voted for. If you are in the minority, you must conform to the majority vote and wait for your turn to come. When you vote daily in the supermarket, you get precisely what you voted for, and so does everyone else. The ballot box produces conformity without unanimity; the marketplace, unanimity without conformity. That is why it is desirable to use the ballot box, so far as possible, only for those decisions where conformity is essential.”

“The economic controls that have proliferated in the United States in recent decades have not only restricted our freedom to use our economic resources, they have also affected our freedom of speech, of press, and of religion…. [F]reedom is one whole, that anything that reduces freedom in one part of our lives is likely to affect freedom in the other parts.”

“Ironically, the very success of economic and political freedom reduced its appeal to later thinkers. The narrowly limited government of the late nineteenth century possessed little conentrated power that endangered the ordinary man. The other side of that coin was that it possessed little power that would enable good people to do good. And in an imperfect world there were still many evils. Indeed, the very progress of society made the residual evils seem all the more objectionable. As always, people took the favorable developments for granted. They forgot the danger to freedom from a strong government. Instead, they were attracted by the good that a stronger government could achieve –if only government power were in the ‘right’ hands.”

“[N]o society that has ever achieved prosperity and freedom unless voluntary exchange has been its dominant principle of organization…. Wherever we find any large element of individual freedom, some measure of progress in the material comforts at the disposal of ordinary citizens, and the widespread hope of further progress in the future, there we also find that economic activity is organized mainly through the free market. Wherever the state undertakes to control in detail the economic activities of its citizens, whevever, that is, detailed central economic planning reigns, there ordinary citizens are in political fetters, have a low standard of living, and have little power to control their own destiny.”

“A society that puts equality–in the sense of equality of outcome–ahead of freedom will end up with neither equality nor freedom. The use of force to acheive equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests. On the other hand, a society that puts freedom first will, as a happy by-product, end up with both greater freedom and greater equality. Though a by-product of freedom, greater quality is not an accident. A free society releases the energies and abilities of people to pursue their own objectives. It prevents some people from arbitrarily suppressing others. It does not prevent some people from achieving positions of privilege, but so long as freedom is maintained, it prevents those positions of privilege from becoming institutionalized; they are subject to continued attack by other able, ambitious people. Freedom means diversity but also mobility. It preserves the opportunity for today’s disadvantaged to become tomorrow’s privileged and, in the process, enables almost everyone, from top to bottom, to enjoy a fuller and richer life.”

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