Chapter 3: Free markets versus democracy?

Free markets

The idea that free markets can be beneficial to humanity first became a globally important philosophy during the mid-to-late eighteenth century, culminating in the 1776 publication of Adam Smith's seminal work, The Wealth of Nations.

Smith wrote about mutually advantageous exchange:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

Democracy

The word democracy comes from the Greek word demokratia, combining demos (meaning "the people") and kratos (meaning "power" or "rule"). It means "rule by the people".

The idea of democracy first became a prominent concept in ancient Athens during the sixth century BCE. Unlike modern nations, Athens used a direct democracy. Citizens gathered in assemblies to debate and vote on laws themselves rather than electing representatives to do so.

The apparent conflict

Free markets can produce great material benefits while also producing outcomes that a majority regards as harmful. When market arrangements impose costs on a large part of the population, citizens may use their democratic power to regulate or restrain them. Economic freedom in the market can therefore conflict with majority opinion expressed through democracy.

Already in ancient Greece, it was recognised that democracy allowed for a tyranny of the majority. Plato and Aristotle discussed how unrestrained popular rule or mob rule could oppress individuals or minorities. John Adams spoke of it in his 1788 work A Defence of the Constitutions of Government of the United States of America. In the 1787 Federalist Papers, James Madison warned against "the superior force of an interested and overbearing majority" trampling the rights of minority groups.

Free markets and democracy are often treated as being in conflict. This can seem counterintuitive because both emphasise freedom from a separate ruling class: free markets leave economic decisions to individuals, while democracy places political power in the hands of the people themselves.

Six aspects of this apparent conflict are examined in the following subchapters: the human effects of the division of labour; the democratic pressure for redistribution created by unequal market incomes; the potential for successive interventions to expand political control over the market; the disputed relationship between democracy and the gold standard; the tension between global property rights and domestic democratic majorities; and cronyism, the mechanism through which concentrated private interests capture coercive public power and convert it into selective privilege.

Other potential conflicts, not examined in detail here, include:

• Externalities and public goods: democratic majorities may regulate uses of property that impose costs on people who were not parties to the transaction, or collectively fund goods that markets provide inadequately.
• Market power: citizens may use antitrust law, labour protections, or public provision to counter monopolies, dominant employers, and severely unequal bargaining power.
• Economic instability: unemployment, financial crises, and sudden losses of income may create democratic demands for social insurance, monetary intervention, or economic stabilisation.
• Moral limits on markets: a democratic community may decide that some goods or activities should not be allocated solely through exchange or ability to pay.
• Future generations: present owners and voters may impose environmental, fiscal, or resource costs on people who cannot participate in current markets or elections.

Neoliberal solution to restrict democracy

The apparent conflict between free markets and democracy was one of the concerns which prompted neoliberal thought.

Neoliberals treated the conflict as real and gave priority to private property and competitive markets over democracy. They retained democratic institutions but placed the market order beyond democratic control when the two came into conflict.

For this reason there is tremendous antagonism towards the neoliberals by the left. There has been a century of conflict between the defenders of democracy (on the left) and the defenders of free markets (the neoliberals).

The end of the Cold War did not end this perceived threat to the market order. Historian and critic of neoliberalism Quinn Slobodian argues that some neoliberals and libertarians came to see egalitarian collectivism reappearing in environmentalism, feminism, anti-racism, gay rights, and multiculturalism. In his account, communism had been defeated as an organised economic system, but democratic movements could still demand environmental restrictions, redistribution, and State action against social inequalities. One strand of market radicalism consequently formed alliances with cultural nationalists and the populist right, treating these movements as new threats to property, markets, and inherited social order. This development did not represent neoliberal or market-liberal thought as a whole.

Quinn Slobodian, “The Method in the Far Right’s Madness”.

Actually resolving the conflict

VoTa reveals there is no need for the conflict. VoTa is both more extreme in supporting democracy than most people that consider themselves to be on the left, and more extreme in supporting free markets than most people that consider themselves to be on the right.

The final subchapter explains how VoTa protects economic freedom without weakening democratic control of the State.