Monthly articles (English and French) on the theme "Querying economic orthodoxy"
No. 13 - January 2007
One Dollar, one Vote
The capitalist society is a democracy in which every penny represents a ballot paper.
Ludwig von Mises, Socialism, an economic and social analysis (1922), tr. J Kahane (1931), p 428
The constitution of the marketplace offers not one person, one vote, but rather one dollar, one vote.
A strange way to vote
Imagine that, when you went to cast your vote, you were asked to produce evidence of your annual income, for example your latest tax filing. You were then given one ballot paper for each thousand dollars of income. So, if you were very poor, you would have only a few votes; if you were chief executive of a big company, or a very wealthy investor, you could have a few thousand. Indeed, if you happened to be Lloyd Blankfein, chairman and CEO of Goldman Sachs, you would get around 54,000 votes (follow the link, and you will see that only a few people at the firm received more than Blankfein). I suspect that only the fattest of cats would find this arrangement fair. The rest of us might feel a touch resentful.
This, however, is the direction in which libertarian (free-market) zealots want us to go. I am not suggesting, of course, that they literally want us to vote at elections in proportion to our income. What I am saying is that they want our spending in the marketplace to matter very much more than our votes on election day.
For libertarians despise the state and view even the most democratic governments with deep suspicion. They therefore want governments to shrink and markets to expand. They would like almost everything that is still done by central or local authorities to be turned over to the private sector. The Heritage Foundation proposes a market-driven education system and wants health insurance premiums to be set by the market, not by state regulation. The Cato Institute calls for partial privatisation of Social Security and favours private ownership and control of internet assets, rather than open access regulation. The Lexington Institute argues for privatisation (1) of the US Postal Service.
Moderate free-marketeers would, at least, let governments carry on with the tasks of defending their countries and upholding the rule of law. Extreme libertarians or anarcho-capitalists, such as David Friedman (2), Murray Rothbard (3) and their followers, have called for private armies, commercial police forces and competing, profit-making courts. Rothbard's strange notions include vertically integrated firms supplying both police and judicial services.
Markets versus politics
These ideologues argue that the market is more sensitive than the political process to popular demand. For we vote, and thus influence the government, only once every few years; we spend money, and thus influence the market, every day. Therefore, say the libertarians, the structures of our society should be taken out of the realm of political control and handed over to the discipline of the market. For then the economic and social system will be more responsive to our wishes.
No doubt it will; but it will respond far more to the wishes of those with far more to spend. Voting gives each of us the equal influence of one vote. Spending gives us highly unequal influences. The constitution of the marketplace offers not one person, one vote; but rather one dollar, one vote. Here is a constitution for an economy that would satisfy more and more the demands of the richest rather than the needs of the poorest.
Moreover, libertarian economists condemn the use of the tax system to mitigate excessive inequalities. A chief executive officer must not be taxed more heavily (in proportion to income) than a waiter. Friedrich von Hayek, for example, quotes with approval nineteenth-century Scottish economist John Ramsay McCulloch (4): the moment you abandon the cardinal principle of extracting from all individuals the same proportion of their income or of their property, you are at sea without rudder or compass, and there is no amount of injustice and folly you may not commit.
But let us be fair to Hayek; he graciously admitted (5) the need for some provision for those threatened by the extremes of indigence or starvation, be it only in the interest of those who require protection against acts of desperation on the part of the needy.
The end of majority rule?
In a climate of high and rising inequality, should we give more power to the market and less to the political process? If we do so, we are moving far from the democratic principle of majority rule. The majority (just over 50% in 2001) of personal income (6) in America accrues to only 20% of American households. The majority of personal wealth (7) is held by well below 10%. And this concentration has increased in recent decades. Giving the market control over more and more of the fabric of our society means that we hand more and more power to an Úlite of the affluent and wealthy.
Historically, America has been founded on revolt against, or escape from, structures which concentrate power and influence in the hands of a minority. Americans from the beginning rejected the feudalism of old Europe; more recently, immigrants fled to America from the oligarchies of the Communist world. Now they espouse economic doctrines that lead to another kind of minority control, the rule of the plutocrats. Surely this is a huge step backwards.
The Austrian economist Ludwig von Mises, author of the quotation at the head of this piece, taught and inspired Friedrich von Hayek, Margaret Thatcher's favourite economic guru. He is thus the intellectual grandfather of Thatcherism. He is also one of the founders of modern economic theory and practice; which simply means that many of us have followed him like sheep. Might we not be happier with a different shepherd?* * * * *
1 For a study of the case against privatization, see Sarah F Ryan at http://academic.evergreen.edu/curricular/privatiz/thesis.pdf
2 David Friedman, The Machinery of Freedom (Open Court Publishing, Peru, Illinois, 1973) passim
3 Murray Rothbard, For a New Liberty (Fox & Wilkes, San Francisco, 1989), passim
4 J R McCulloch, Edinburgh Review, vol. LVII (1833), p. 164
5 Friedrich von Hayek, The Constitution of Liberty (Routledge & Kegan Paul, London, 1960), chap. XIX
6 US Census Bureau (HHES) Historical Income Tables, table IE-3
7 Arthur B Kennickell (Federal Reserve Board), A Rolling Tide: Changes in the Distribution of Wealth in the US, 1989 - 2001. This paper suggests that US personal wealth in 2001 could be attributed "about a third each to the wealthiest 1%, the next wealthiest 9%, and the remaining 90% of the population". Thus it would seem that the top 10% hold two-thirds of total wealth. Accordingly, the majority (just over 50%) is held by well below 10% of the population.