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A Real Democracy

Mises Daily: Monday, November 06, 2000 by

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Alexis De Tocqueville

The word democracy is conspicuously absent in the Declaration of Independence, Constitution, and Bill of Rights. The framers feared it, and so limited federal power with checks and balances.

Yet in a real sense the Founding Fathers did provide democracy, a lot of it, but in the voluntary private sector. They left the vast bulk of the people's business to the people themselves. As a young Alexis de Tocqueville found in his 1831-32 tour here, virtually the entire economy thrived in a free, lively, fast-growing private sector that he included under the category of 'democracy.'

He saw no income tax, no farm subsidies, no welfare, no antitrust, no gun control, no rent control, no federal immigration control, no regulatory agencies such as the SEC or OSHA, no war on drugs, no Social Security, no Medicare. Schooling was mostly private. Freedom of association was widespread and growing.

"Americans of all ages, all conditions and all dispositions constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds," he wrote.

De Tocqueville did see that such associations, if tied to constitutional decay, could mean the rise of special interests, and thus the welfare state, of which he wrote prophetically: "The will of man is not shattered, but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting."

"Such a power does not destroy...does not tyrannize, but it compresses, enervates, extinguishes and stupefies a people, till each nation is reduced to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd."

A century later another rare thinker exerted an influence over America--Ludwig von Mises, a man who foresaw in 1920 the fall of Soviet socialism for its lack of economic calculation. He was an Austrian Jew who escaped Nazi Europe in 1940 and was the mentor of Friedrich Hayek, who co-won the 1974 Nobel Prize in economics.

Mises held that everyone in a market society is an entrepreneur in one degree or another. He said every human action takes place in time, involves uncertainty and risks loss. He observed that consumers and not producers control a market system and set individual income divergence, a healthy thing.

As he wrote in 1949, "The direction of all economic affairs is, in the market society, a task of the entrepreneurs. Theirs is the control of production. They are at the helm and steer the ship. A superficial observer would believe they are supreme. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer.

"It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poor citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of the consumers."

Consumer sovereignty in the democracy of the market is supreme over every producer, every farm, every for-profit and nonprofit organization, over every worker from the clerk to the CEO. The consumer votes them all up or down, in or out, so that every firm or affiliation, including religion, is subject to the individual voter's free assent.

In this democracy, the voter votes not just every other year, but also many times a day in an endless plebiscite. The market is a discovery process for consumers and producers, self-regulating under supply and demand. It is a "marvel," in Hayek's word.

The polling booths of the market are ubiquitous, many open 24 hours a day, with such handy means as a bank, law office, gas station, supermarket restaurant, cell phone and Internet, with many millions of Web sites--all freely, avidly seeking your vote.

It is this second democracy of, for and by the people that the next president must protect.