All Commentary
Friday, March 1, 1996

America’s Other Democracy

Every Day Is Election Day in the Marketplace

Dr. Peterson, Heritage Foundation adjunct scholar, is Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University in North Carolina, and author of a forthcoming book, Peterson’s Law: Why Things Go Wrong, from which this article is drawn.

Leonard Read used to tell the story of a shopper in a crowded department store during the Christmas rush. After buying some gifts, she forges her way to the gift-wrap counter, telling the clerk how jammed the store is. “Yes,” says the clerk, “it’s our best day so far.” Then the shopper walks over to the post office to mail her gift packages, again remarking to a clerk on the crowd in the post office. “Yes,” muttered the clerk, “it’s our worst day so far.”

The Read story ties into the partisan fracas over the federal budget, a fracas between those who would “reinvent” government and those who would “disinvent” it. Initially, the disinventors would eliminate the U.S. Commerce, Energy, and Education Departments and some 300 programs, including funding for the National Endowment for the Arts and the Corporation for Public Broadcasting. Down would go a big chunk of government.

Reinventors shake their heads and ask: But what, if anything, takes the place of that chunk?

The answer, it seems to me, swings on perceiving and re-evaluating what amounts to America’s second democracy. This is a largely undiscerned sector under the rule of law which in important respects is larger than the first.

Think about it: There’s a dominion within our dominion that works without pork, taxes, political parties, bureaucratic chicanery, and government waste. What is more, this second democracy, while hardly perfection, is strictly voluntary, self-regulating, and a lot more moral than the first democracy. On the critical matters of consent and participation, this second democracy also wins hands down.

Well, where is this unsung Shangri-La where the people themselves command and control, direct and manage a slew of hierarchies of authority?

It’s all around, under your nose, as near as your telephone from which you can call a doctor or plumber, or order a pizza or airline tickets. This democracy is the common—if unrealized and unappreciated—marketplace. Indeed, it’s the whole private sector.

Consider. In America’s first democracy 104 million votes were cast in the last Presidential election. In the second democracy, billions of votes are cast daily to make phone calls or watch TV or pay rent or use some other market facility such as a bank, restaurant, gas station, motel, newspaper, coin laundry, supermarket, brokerage office, country club, corner bar, and now interactive TV or the modernized PC. Throughout, dollars are ballots.

The Miracle of the Market

Note that every day is Election Day in the marketplace, that it is based on free choice, that it regulates itself with high prices encouraging supply and discouraging demand, with low prices discouraging supply and encouraging demand. Free prices thus ever adjust to new conditions, erasing shortages and surpluses as they develop—unheard of in the first democracy.

This is the ordinary extraordinary market which Nobel Laureate F. A. Hayek called a “marvel.” Marvelous to behold for its inherent dynamics and growth. Said Thomas Paine in his Rights of Man in 1791: “Society performs for itself almost everything which is ascribed to government.”

Note too that in marketplace democracy every producer-candidate is held strictly accountable, that he runs scared all the time, that he daily tries to score with a better product at less cost for the sovereign consumer—sovereign because of his life-or-death power of the purse. (Importantly, the sovereign consumer includes the business consumer.)

Indeed, the consumer is king or queen, an absolute monarch ruling this second dominion with an iron hand. Ordering this. Ordering that. Literally. Even lethally. Your mother (or grandmother or great-grandmother, depending on your age) did in the iceman in the 1920s and 1930s. How? She and millions of her cohorts switched their votes—and bought refrigerators, and today the iceman cometh no longer.

Reinventors complain about America’s inequality of wealth. But they don’t mention how this wealth is put to work for all Americans—and at risk. As Ludwig Mises says in Human Action: “Ownership of the means of production is not a privilege, but a social liability.”

Mises explains that savers, investors, landowners, and all other owners of wealth are prompted by self-interest to place their property at the highest possible advantage to the consumers. If the capitalists are slow or inept in advantaging the consumers, they incur losses. And if they don’t mend their ways, they lose their wealth. Among corporate giants who lost market share and had to play catch-up: IBM, General Motors, Sears, Xerox.

Too, with the marketplace invariably based on individual consent, it reflects social cooperation and peaceful dealing even with local tensions. Hindus and Muslims, for example, trade with each other—that is, vote for each other—in Calcutta, as do Catholics and Protestants in Belfast, Arabs and Jews in Jerusalem, blacks and whites in Johannesburg.

In a similar vein, says a wise old IBM slogan: “World Peace Through World Trade.” Indeed. So sip your tea from Sri Lanka, drive your car with gasoline refined from oil from Kuwait, eat a banana from Ecuador, enjoy your wine from France, your camera from Japan, your furniture from Finland, your cocoa from the Ivory Coast. Millions of people who are strangers help each other, cooperate with each other, depend on each other. What world leader has achieved such remarkably harmonious domestic and international collaboration across the globe?

To be sure, government is essential to safeguard life, liberty, and property—otherwise we’d plunge into anarchy. But the core problem of the last 66 years of hyperactive, interventionist government reaches beyond deficit spending and heavy inflation; it is this:

Expansion of the first democracy means diminution of the second—the shrinkage of freedom and free enterprise.

Yet the Father-Knows-Best state stretches from the Davis-Bacon Act to Social Security, from Medicare to the Environmental Protection Agency, from the Federal Deposit Insurance Corporation to the Fair Labor Standards Act to the progressive income tax, to thousands of other state interventions, all highly politicized, all impeding social cooperation.

These interventions are at odds with the Mises concept of market-driven economic calculation whose lack befuddles state planners and regulators. This lack is the Achilles’ heel of socialism and interventionism. Nonetheless, state interventions persist, boomerang, make things worse, set back the second democracy and a key principle of a free society—consent by the individual.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.