WASHINGTON, D.C. — Shiite clerics in Iraq, before literally hundreds of thousands of their self-flagellating faithful in Karbala, some 50 miles south of Baghdad, proclaim the urgency of an Islamic republic or theocracy. They screech anti-Americanism and denounce American and British ground forces as “occupiers,” not “liberators.” The “liberators,” for their part, especially President Bush and his advisers in and out of the White House, sing hosannas to democracy and say that’s precisely the kind of government they will confer on a grateful Iraqi populace–seemingly whether the clerics or the people like it or not. Stay tuned.
Meanwhile, the Bush White House has arm-wrestled with an almost evenly-divided Senate, including some hold-out Republicans, over hundreds of billions of dollars in tax-cuts, including ending the double taxation of dividends, to “stimulate” a lagging economy.
So, as this foreign political and domestic economic in-fighting resonates, herewith is some perspective on our mixed-business system now under a public opinion cloud. Goldman Sachs CEO Henry M. Paulson Jr., for example, told the National Press Club last year he has never seen business under tougher public scrutiny, “much of it deserved.”
The cloud seems to be brewing some sort of revitalized corporate responsibility program such as a code of business ethics, if without a hint of a parallel code of political ethics. Already stabs at such a program are under way, one that could be conceivably coordinated by the likes of the Business Roundtable or the Conference Board. Even so, as I see it, that program should make this point …
Capitalism is our greatest charity and democracy.
Greatest? How so? Well, for long Nobel economist Milton Friedman has hailed capitalism’s unintended charity, its systemic gift of rising national productivity and hence higher real income for a nation of free-riders–i.e. its big private and, in a sense, costless War on Poverty. Or as Milton and Rose Friedman put it in their Free to Choose (Avon, 1980, p. 236): “[H]igher wages are at nobody’s expense. They can come only from higher productivity, greater capital investment, more widely diffused skills. The whole pie is bigger–there’s more for the worker, but there’s also more for the employer, more for the investor, the consumer, and even the tax collector.” Thus does capitalism turn out to be our greatest charity, our incredible bread machine.
Let me first note capitalism’s generally unrecognized and inadvertent adversary: an old-new unravelling of limits on political democracy so that a burgeoning Leviathan or welfare state emerges, one at odds with capitalism and democracy, rightly understood. As Nobel economist James Buchanan said presiently in the Wall Street Journal in an op-ed in1990 as Eurocommunism from East Germany to the Soviet Union was sliding into the dustbin of history: “Socialism is dead; Leviathan lives.”
I define capitalism as history’s most moral, friendly, voluntary, productive, and durable economic system. It should be especially understood and safeguarded in the heat of today’s economic debate. It is based on private property rights, equal rights, limited government. It features privately-owned tools of production of goods and services. Any fallible entrepreneurs (Enron, WorldCom, Tyco, etc.) are quickly and severely punished by the stock market, far faster than by the courts or the Securities and Exchange Commission. Entrepreneurs are led and, if need be, punished, democratically, mostly by their customers–broadly, said Mises, by sovereign consumers everywhere, with their make-or-break “orders” (what a word!) and their key market price signals.
Yet what is democracy? See its Greek derivation: rule by the people–the “demos.” But who rules whom? Why do state interventionism and hegemony seem to reign today as givens, why does the free individual fade across the West, and why do state hegemony and majoritarian democracy rise today together–or, as put by satirist P. J. O’Rourke, why “we vs. me”?
Whither then today’s berated, underrated, overregulated, and misconstrued capitalism? Isn’t it still the royal road to social cooperation, a vast vital private government, a network of millions of economic governances of the people, by the people, for the people, with individual assent–highly-used withdrawable assent?
And whither society so often duped here, there, everywhere in an age of increasingly unlimited Political Democracy? Mustn’t government be watched and feared, always? As Jefferson said a letter to E. Carrington in 1788: “The natural progress of things is for liberty to yield and government to gain ground.” Recall the anti-Jewish laws in Nazi Germany or of our own slave and, later, Jim Crow laws.
Democracy? Is this the shield for a Pax Americana brandished to police a sinful mostly undemocratic globe, with the focus now on the turbulent Middle East? But doesn’t this serve up Juvenal’s classic conundrum (74 A.D.): Sed quis custodiet ipsos custodius (But who is to guard the guards themselves)? Thomas Paine detected this rub in 1776, seeing government as “a necessary evil.” Bismarck likened the legislative process to the unsightly conversion of pigs into sausages. Churchill said democracy is the least awful way to effect a peaceful succession of political power. Or as Swiss thinker Felix Somary held in his Democracy at Bay (Knopf, 1952, p. 6): Democracy blends two “fictions,” one the idea that “an entire people can assume sovereignty” and the other the idea of “the innate goodness of man.” Somary found both ideas untenable.
Democracy? Of course. But isn’t most political democracy misread as majoritarian and unlimited, so undoing the spirit if not the letter of our Declaration of Independence, Constitution, and Bill of Rights, with the First Amendment starting out undemocratically with “Congress shall pass no law … “? Can’t majoritarian and unlimited democracy undo republics and society, including America? So I juxtapose below America’s Political Democracy with the Mises point of Consumer/Market Democracy to clarify which is which–and ask that while both need repairs, which needs the most?
Consider. In one democracy you vote 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 for specific goods or services, in an endless plebiscite that goes on every minute, with dollars as ballots. Yes, some get with more ballots than others. Yet Mises (Human Action, Yale, 1949, p. 270) sees this outcome as changeable, as sovereign consumers vote “poor people rich and rich people poor.”
So one democracy is public, the other private. One funds failing programs and schools, the other lets failing firms and private schools fail. One is coercive and centralized, the other voluntary and decentralized. One runs a growth-harming win-lose zero-sum game, the other a growth-gaining win-win positive-sum game. One runs by politics and monopoly, seemingly unmindful of Henry David Thoreau’s Civil Disobedience of 1849 when he saw “little virtue in the action of masses of men” and voting as “a sort of gaming,” the other runs by economics and competition. One forgets the individual a la a famous 1883 lecture, “The Forgotten Man,” by Yale’s William Graham Sumner, the other remembers him/her (if with junk mail in your mail-box and spam on your Internet screen).
One democracy plays incumbency ruses such as gerrymandering, warmongering, logrolling, compromises with principle, and free-lunch guises such as federal “grants” to states and localities ($313 billion, 1st qtr., 2003, seasonally adjusted annual rate), the other is cleansed by competition, cost-cutting, repeated and demonstrated market performance, and, above all, by consumers (in the apt Friedman phrase) free to choose.
One democracy veers to the Machiavellian amoral and short-run in aim, the other to a moral contract and longer-run. One, coercively powered, tends to succumb to Acton’s law that power tends to corrupt and absolute power corrupts absolutely, if the other, while gloriously voluntaristic, can and does get into bed with political power to win tariffs, import quotas, subsidies, and other mischief via special interest participation, despite President Dwight D. Eisenhower’s caution against a “military-industrial complex” in his farewell message in 1961.
One democracy can glorify war, including class warfare, the other glorifies peace in a virtual global concordance–per IBM’s old motto, “World Peace Through World Trade.” One entered World War I, naively, as “The War to End War,” and “Make the World Safe for Democracy,” only to reap 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, and lesser imitators throughout Asia, Africa, Central Europe, Latin America, and the Middle East which, again, President Bush seeks to “democratize,” pointing to Germany and Japan as post-World War II success stories while remaining silent about unsuccesses like Vietnam, Bosnia, Somalia, and Haiti (gamely launched as “Operation Democracy”). Building democracy, especially in a nation like Iraq with its non-Western culture, can be messy,uncertain–anything but a science.
One democracy rues income disparity and, like Robin Hood, redistributes wealth, the other, per President John F. Kennedy pushing an across-the-board income tax cut, “lifts all boats.” One denies itself crucial feedback information–what Mises called “economic calculation,” predicting in 1920 the ultimate collapse of socialism per the Soviet Union–the other uses that calculation to help allocate limited resources to their perceived optimum uses. One wastes capital and talent (human capital), the other saves and invests it, self-interestedly yes–yet, when under a moral code and the rule of law, spontaneously, harmoniously, constructively. As the Friedmans observed, such has been the American experience, the American Dream.
The latter democracy then is led or incentivized by the “invisible hand” of self-interest in a system of “natural liberty,” of self-help by helping others, wrote Adam Smith in The Wealth of Nations (1776), reminding us: “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.”
Q.E.D.: Capitalism is America’s greatest democracy. And hope.