Does democracy lead to socialism?

VoteStateIsaac Morehouse wrote a great post on the Laissez Faire Blog in which he explains a critical and too-little-understood aspect of political democracy:

I recently heard a political commentator bemoan the results of surveys and elections. He said the sad truth, whether libertarians wanted to hear it or not, is that Americans want big government. They want handouts, high taxes, regulatory interference, and on and on. They vote for people who talk about it. They re-elect them when they deliver it. On opinion surveys they favor entitlement programs and broad intervention. I couldn’t help but laugh.

"Voters are liars," Morehouse explains, echoing the title of his post. "They tell the truth about their opinion in the abstract, free from trade-offs and constraints, but this has little to no meaning when translated into the real world." His conclusions are optimistic: "Don’t listen so much to what people say, look at what they reveal by their actions.… What I see around me — the revealed preferences of billions of earth’s citizens — is a vote, indeed a mandate, for more freedom."

Libertarians are caricaturized by our opponents as "market fundamentalists," implying that our trust for the free market is both religious and irrational. (Religious literalists, who are rarely supporters of the free market, cast different aspersions.)

When we are lampooned for our trust in the market, what our critics have in mind is a supposedly blind trust for the consequences of freedom and competition, rather than central planning and coercive intervention. But Morehouse takes it one step beyond even the lampoon: he trusts what people "say" through the market more than through the words they use and the votes they cast. I’m entirely with him on this, but it does appear at first to be an outrageous position: the masses don’t mean what they say; people are wrong about what they want; voters are liars.

On the other hand, isn’t it a truism that actions speak louder than words?

When I was editing the book Mises: The Last Knight of Liberalism, I was fascinated to learn about the disagreements that Ludwig von Mises — one of the most radical classical liberals that 20th-century Europe produced — encountered with American libertarians, who felt that his liberalism didn’t go far enough.

Some of these disagreements would strike most of us as highly abstract, such as the question of whether or not the philosophy of freedom is based in natural law or utilitarianism. But at least one point of contention was the question of majoritarian democracy. Mises had defended both capitalism and democracy in his book Liberalism. American libertarians such as R.C. Hoiles and Frank Chodorov shared Mises’s appreciation of the free market but were far less sanguine about majority rule. The harshest language came from Rose Wilder Lane:

As an American I am of course fundamentally opposed to democracy and to anyone advocating or defending democracy, which in theory and practice is the basis of socialism.

It is precisely democracy which is destroying the American political structure, American law, and the American economy, as Madison said it would, and as Macauley prophesied that it would do in fact in the 20th century. (Letter from Lane to Mises July 5, 1947)

Why would Lane argue that democracy is “the basis of socialism”?

I haven’t seen any more of her letter than Jörg Guido Hülsmann quotes in Last Knight, but a couple of reasons seem likely.

Mancur Olson’s book The Logic of Collective Action: Public Goods and the Theory of Groups wouldn’t appear for another 18 years, but some version of his thesis was probably already familiar to Lane and her radical allies.

Olson argues that majority rule separates the benefits and costs of decision-making. Elections aren’t just a poll of everyone’s opinion; they are organized campaigns by different groups fighting for their interests. A voter doesn’t go into the booth having studied the controversy in question. He or she brings to the polls an impression of an issue based on how different organized groups have presented it during massive advocacy campaigns prior to Election Day. Every such campaign is a case of a special-interest minority trying to persuade a voting majority.

And it’s not a level playing field, to borrow a favorite metaphor of the Left’s. Olson explains how the incentive for group action decreases as the size of a group increases, meaning that bigger groups are less able to act in their common interest than smaller ones. Small groups can gain concentrated benefits while the rest of us face diffuse costs.

You can read an informative summary of Olson’s argument at About.com.

The example that works best for me is sugar tariffs. Why is Coke sweetened with corn syrup in the United States and with sugar everywhere else in the world? Because sugar is cheaper everywhere else in the world, while the US government keeps its price artificially high for Americans. The tariffs responsible are a huge benefit to a small group of domestic sugar producers (and, as it turns out, also to corn growers) and a burden on the rest of us.

Ignore the corn-syrup issue for a moment and pretend that Coke is still made with sugar. Let’s imagine that the tariffs make each can of Coke, say, 25¢ more than it would be. That difference really adds up, but at the moment you’re buying the can of soda, it’s an irritation, not a hardship. Even if you bother to figure out how much extra money you have to spend on sweet drinks each year, the figure probably won’t be enough to stir you to petition the legislature to repeal the tariff. In fact, the loss isn’t even enough to prompt you to learn the cause of the higher price. You may not even know that there is a tariff. Why would you even bother to know what a tariff is? What does that have to do with wanting a Coke?

That’s what economists means when they talk about diffuse costs.

On the other hand, the sugar producers will make hundreds of millions from lobbying and campaigning to explain why their favorite tariffs are good for the economy.

Now take this example and multiply it by all the special interests seeking government favors. Even if you understand what’s going on, even if you know how this hurts the economy and consumers and yourself, it’s not like there’s ever one plebiscite, a big thumbs-up or thumbs-down for free trade. Every issue is addressed separately, and every issue faces the same logic of collective action we see in the case of the sugar tariff. (And as with the case of sugar, where the corn industry has its own interests in promoting higher sugar prices, many issues have multiple special-interest groups with their own reasons for supporting harmful policies.)

Now replace agribusiness in this example with teachers’ unions or the AARP or anyone else who benefits from a government program, even if that program hurts the rest of us.

From this perspective, Rose Wilder Lane doesn’t seem quite so polemical for equating democracy and socialism.

Isaac Morehouse’s point wasn’t exactly Lane’s or Olson’s, but it’s related: you can’t judge someone’s interests without knowing the "trade-offs and constraints." Expressed opinions have "little to no meaning when translated into the real world." Real preferences are demonstrated through real actions taken, especially those where the actor must bear the cost of the action.

Democracy is a self-fulfilling prophesy. The system is rigged from the outset to favor ever more interference from ever bigger government. The market not only produces better results for the greater number; it also reveals what we actually want in the real world of trade-offs, whether or not we ourselves know what we want.

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3 Responses to Does democracy lead to socialism?

  1. Scott Lahti says:

    “I haven’t seen any more of her letter than Jörg Guido Hülsmann quotes in Last Knight

    July 5, 1947

    My dear Dr. Mises,
    My conscience is still bothered by my silence which consented to your remark
    to me at Mr. Hoiles’s luncheon, that you and I are “agreed on fundamentals.” At
    the time, it didn’t seem the place or moment to talk about fundamentals. I should
    have said at once, however, that as an American I am of course fundamentally
    opposed to democracy and to anyone advocating or defending democracy, which
    in theory and in practice is the basis of socialism.
    It is precisely democracy which is destroying the American political structure,
    American law, and the American economy, as Madison said that it would, and as
    Macauley prophesied that it would do in fact in the 20th century.
    Compared to this fundamental perversion of American individualism in theory,
    and to the actual destruction of law, suppression of human rights, and wrecking
    of the Republic which result from this perversion, it’s a relatively superficial fact
    that praise of democracy, and representing democracy as “the opposite of social-
    ism” is [a] Communist Party tactic in this country. Of course the reason that it
    is the Party tactic here is that Communists understand political theory and know
    what they are doing.
    Everyone whom I know who knows you personally insists that you sincerely
    believe that you are opposed to socialism, and that you do not know what you are
    doing. This was my own opinion after reading OMNIPOTENT GOVERNMENT
    and BUREAUCRACY. It may be true. If it is, you will want to see the very
    incomplete list of democratic organizations, enclosed, which will faintly indi-
    cate to you the groups with whom you align yourself here, by your footnote in
    PLANNED CHAOS and your praise of democracy throughout this booklet. This
    is merely a question of tactics and of associates, of course; not of fundamentals.
    I write this note simply to repair my omission at Mr. Hoiles’s luncheon; to say
    that I am fundamentally opposed to the political theory you support and the politi-
    cal practice you advocate: democracy.

    With all good wishes,

    Yours sincerely,

    Rose Wilder Lane/ASL

    [Ludwig von Mises’s response to Rose Wilder Lane’s July 5, 1947 letter]

    Dear Madam,

    I did not make any remarks to you at Mr. Hoile’s luncheon. It is my principle
    never to address any reviewer who called my writing “stuff and nonsense.” When
    Mr. Hoiles introduced me, I just muttered “How do you do.”
    I do not care whether or not you consider me sincere. I know that all commu-
    nists and ex-communists are fundamentally opposed to my theories.

    Yours sincerely,

  2. Scott Lahti says:

    In the “revealed preference” vein, you might also enjoy “A Visit to Rhinegold” by Harry Browne, a fantasia on a theme by Ann Archocapitalism (my term, not his) that originally appeared as a chapter in Harry’s biggest bestseller, You Can Profit From a Monetary Crisis from 1974, when his chin, in Me-Decade period fashion like the post-Watergate John Ehrlichman, was at its arguably most-heavily old-growth forested.

  3. Scott Lahti says:

    “revealed preference”

    Did I (and Murray Rothbard) mean: demonstrated preference

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