Many people argue that democracy is incompatible with capitalism, but they differ on whether democracy will subvert capitalism or whether capitalism will subvert democracy. The first argues that the logic of democracy leads to socialism with James Madison and Joseph Schumpeter decrying the road to serfdom, with others like Karl Marx delighting in this historical inevitability. The second argues, based in part on fears of rising inequality, that capitalist oligarchs will come to control the democratic process, cementing their dominance. Democratic forms may remain, but true democracy will be ended. A third argument consistent with the views of Hayek, Mises, Friedman, and others is that capitalism and democracy are compatible and even mutually reinforcing. We provide evidence for the third view by showing that most democracies are capitalist, and most capitalist countries are democracies. Empirically there is no obvious and inevitable trend either toward or away from capitalism or democracy, although both rise and fall with events. We argue that there are significant complementarities in theory and practice between capitalism and democracy and, as a result, capitalist democracies are relatively stable.
Iain Murray explains that “liberty is the common good of a free people.”
Deirdre McCloskey ponders the categorical difference between persuasion and coercion.
Luke Sheahan explores the deep history of America’s founding creed. A slice:
Want to hear something wild? In 2026, the semiquincentennial of the Declaration of Independence, we now sit further in time from the Mayflower Compact (406 years) than the Mayflower Compact did from the Magna Carta of 1215 (405 years). Although the 1215 Magna Carta is arguably less important than the 1225 version, the former was valid for three months before war broke out again and the latter became enduring law. This puts the accomplishments of Magna Carta and the Mayflower Compact even closer in time to each other and proportionately further from us. Distance in time does not connote distance in primary philosophical commitments, of course, but it does invite contemplation of continuities and discontinuities in our constitutional tradition.
I thought of these dates the other day, and it gave me pause. For some reason the Puritans are, for all their religiosity, ineradicably modern, and the barons at Runnymede, for all their insistence on legal procedures and written limitations on centralized political power, ineradicably medieval. The former are our forefathers politically and constitutionally, and the latter aliens from a time and place far removed from our own. Yet the thing we celebrate this year owes everything to both of those documents and subsequent constitutional developments that came from them. We might even say that the genius of the Declaration of Independence and the whole American political project is a summary of these documents and their respective traditions of constitutionalism and self-government.
Magna Carta, the Mayflower Compact, and the Declaration of Independence arose as strictly political documents. Magna Carta of 1215 became a symbol for fundamental law, but was not itself quite fundamental law. It emerged from political squabbles between the barons and the monarch, and its changing contours reflected changes in the fortunes of those parties. While not originally the advance for individual liberty, rule of law, or restriction on royal power that its proponents throughout the centuries insisted, Magna Carta symbolized the ethos or aspirations of the English realm, one of liberty under law. The drafters of the Mayflower Compact found themselves thrown off course, landing to the north of Virginia. They fell back upon their covenant tradition to forge a “civil body politick.” In the following decades, other nascent “civil body politicks” at the local, colonial, and pan-colonial levels followed the same pattern to the extent that such compacts would dominate the American concept of self-government for the next four centuries and beyond. It captured and anticipated the primary symbol of the American political tradition, that of a virtuous self-governing people. Out of their peculiar political circumstances, each document developed constitutional concepts central to the American constitutional tradition.
A new study by Benjamin Jaros and Joshua Rauh, two economists affiliated with the Hoover Institution, challenges that projection. Their report points out that at least seven billionaires left California before Jan. 1. In fleeing, they took with them nearly 29 percent of the proposal’s tax base. (Obviously, other billionaires may have relocated with less publicity.) Jaros and Rauh also try to account for the uncertainty over whether taxes can be collected from other billionaires, such as the ones who have left since the beginning of the year and may thus have a legal case for escaping the tax. The economists estimate the proposal would bring in roughly $30 billion.
That’s still a lot of money, but the duo then estimates how much income-tax revenue California won’t receive from the billionaires it will have driven away. They project that such foregone payments will exceed wealth-tax revenue by $39 billion in current dollars. (That’s conservative, too, as it doesn’t count the lost income-tax revenue from the Californians those billionaires would have employed if they had stayed put.) Jaros and Rauh calculate that the state will lose money so long as 24 percent of the tax base flees, a condition that’s already been met.
Peter Minowitz sent this letter to the Washington Post, but it was not published there:
In attempting to guide “progressive” and “left-wing Democrats” to electoral victories, Paul Mason wisely warns them about the Leninist minorities within the Democratic Socialists of America who favor revolutionary violence. Mason fails, however, to convey the Leninist seeds planted by the current DSA program. Regarding economics, it maintains that capitalism “must” be replaced; it calls for collective ownership of “the key economic drivers that dominate our lives, such as energy production and transportation” and for placing the “largest” corporations and “essential” industries under “public ownership.” Regarding politics, furthermore, the program calls for eliminating the Senate while subordinating both the presidency and the Supreme Court to the newly unicameral Congress. By combining political centralization with economic collectivization, the DSA is drifting toward the Leninist “armed vanguard” that would overthrow capitalism.
In State and Revolution(1917), Lenin himself drew meticulously on Marx and Engels when promising that the state (along with “all bureaucracy”) would end up “withering away.” By extolling “multi-party democracy,” the DSA departs from both Bolshevism and Stalinism. But how well will freedom, prosperity, and democratic deliberation fare after a consolidated national government swallows a huge portion of the U.S. economy?
Peter Minowitz, Professor of Political Science, Santa Clara University
DOCUMENTATION: The “armed vanguard” and “all bureaucracy” phrases appear in Chapter III of State and Revolution (on page 43 of the standard International Publishers edition). “Withering away” appears there and in Chapter V (on page 79).
John Cochrane offers “some simple principles for taxation and spending.”
James Bacon recommends The Indispensable Robert Higgs: A Reader.
The Great Society of which [Adam] Smith spoke, and that was extolled by Hayek, is a civilizational enterprise worth defending and pursuing, not least because it is a hopeful endeavor and ultimately puts its faith in ordinary people. It reflects a confidence that if the everyman and everywoman are given freedom in the context of the economic, cultural, legal, and political settings identified in books like The Wealth of Nations and The Constitution of Liberty, they will not only avoid servitude; they will also enjoy greater possibilities for living lives marked by prosperity and purpose than any set of comparable arrangements known to humanity.
This “slippery slope argument” is rooted not in paranoia, but history. The best predictor of future behavior is past behavior. In the past, when governments received the power to cheaply remedy glaring market failures at low cost, they could have done so and declared victory. They almost never did. Indeed, governments spurned streamlined textbook fixes – like taxing negative externalities and subsidizing positive externalities – from the get-go. Issuing edicts – “command and control” – has far more demagogic appeal. Once governments start issuing edicts, they keep issuing. Angry complaints and shocking incidents organically arise – and the crowd-pleasing response is not cost-benefit analysis, but “decisive action” against malefactors of great wealth and alien lands.
One feature of commercial society is that it provides many people with more space for acting and making choices freely about what ends they decide to pursue – at least compared to previous social arrangements. But this liberty goes along with greater interdependence on others; thus, far from encouraging radical individualism, commercial civilization demonstrates that we are intrinsically social beings.
It’s truly insane how many people’s entire political viewpoint is centered around self-righteous nonsense built entirely around strawmen & caricatures of their — overwhelmingly imaginary — opponents.
What is important about the market economy is that unexploited opportunities for reallocating resources from one (low market valued) use to another of higher value offer the opportunity for pure entrepreneurial gain. A misallocation of resources occurs because, so far, market participants have not noticed the price discrepancy involved. This price discrepancy presents itself as an opportunity to be exploited by its discoverer. The most impressive aspect of the market system is the tendency for such opportunities to be discovered.
