Democracy (Public Ownership)
What would happen if we applied basic economic principles to various forms of governance in order to ascertain the most efficacious and stable governmental system? Where would democracy stand? Would the undoing of the old order brought about by the Great War still be considered an advance, or in hindsight would it perhaps be considered a mistake?
Democracy has historically been given short shrift as a form of government by many political philosophers throughout history. To summarize the Greek (birthplace of democracy) thoughts on democracy let us turn to two quotes from Plato:
“Tyranny naturally arises out of democracy.”- Plato
“Dictatorship naturally arises out of democracy, and the most aggravated form of tyranny and slavery out of the most extreme liberty.” – Plato
The feelings did not get any fuzzier as time went on either:
“The minority is sometimes right; the majority always wrong.”
— George Bernard Shaw, 1856-1950, Irish writer, Nobel 1925
“If voting made any difference they wouldn’t let us do it.”
— Mark Twain, 1835-1910, American writer
“Democracy is a pathetic belief in the collective wisdom of individual ignorance.”
— H.L. Mencken, 1880-1956, American columnist & cultural critic
“In the strict sense of the term, a true democracy has never existed, and never will exist. It is against natural order that the great number should govern and that the few should be governed.” — Jean Jacques Rousseau, 1712-1778, Swiss-French philosopher
Even our founding fathers had their misgivings:
“Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.” -John Adams
“It has been observed by an honorable gentleman, that a pure democracy, if it were practicable, would be the most perfect government. Experience has proved, that no position in politics is more false than this. The ancient democracies, in which the people themselves deliberated, never possessed one feature of good government. Their very character was tyranny; their figure deformity.” -Alexander Hamilton, Speech to Congress, June 21, 1788
As we can see there have been some philosophical issues taken with democratic machinations, but what can we see through the lens of economics?
Democracy is a form of government in which the people being governed are asked to cast votes for policies and laws. The majority of votes will carry the day, and the laws approved by the majority are therefore brought into being. Various forms of democracy will have different provisions to protect rights against the will of the majority, but this takes different forms and is beyond the purview of this article. The salient point is that the people in a given geographical area have collective ownership of the government in this system. The government itself becomes of form of “public” or “common” property. An economic principle commonly associated with collectively owned assets is that of the tragedy of the commons, “A tragedy of the commons is a collective action problem that arises whenever there is a rival and non-exclusive resource to be divided between two or more people” (Corvino, 2020).
That this is a feature of the current political system in the western world is apparent. The ability to vote oneself scarce resources (governmental power) certainly serves to heighten the sentiment of “winners” and “losers” of an election in which one side is subject to what they may term a tyranny of the majority.
This is however not the only economic phenomenon to which democracy can be subjected. In democracy the reins of power are only held for a certain period of time, and cannot be bequeathed as though that power was property.
“A democratic ruler can use the government apparatus to his personal advantage, but he does not own it. He cannot sell government resources and privately pocket the receipts from such sales, nor can he pass government possessions onto his personal heir. He owns the current use of government resources, but not their capital value. In distinct contrast to a king, a president will want to maximize not total government wealth (capital values and current income) but current income (regardless and at the expense of capital values). Indeed, even if he wished to act differently, he could not, for as public property, government resources are unsaleable, and without market prices economic calculation is impossible. Accordingly, it must be regarded as unavoidable that public government ownership results in continual capital consumption. Instead of maintaining or even enhancing the value of the government estate, as a king would do, a president (the government’s temporary caretaker or trustee) will use up as much of the government resources as quickly as possible, for what he does not consume now, he may never be able to consume. In particular, a president (as distinct from a king) has no interest in not ruining his country. For why would he not want to increase his confiscations if the advantage of a policy of moderation-the resulting higher capital value of the government estate- cannot be reaped privately, while the advantage of the opposite policy of higher taxes-a higher current income-can be so reaped? For a president, other than a king, moderation only offers disadvantages” (Hoppe, 1994).
In my next article we will examine how Monarchy fairs when subjected to a vigorous economic analysis.