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Liberal critics of free-market capitalism have argued
that free markets are incompatible or at odds with democracy, but a new study from the Competitive
Enterprise Institute (CEI) aims to show otherwise. Liberals act as though
free-market reformers would destroy democracy, but capitalists are more likely
the allies of constitutional representative government and the opponents of
bureaucratic rule. Self-styled progressives, meanwhile, aim to strengthen an
unaccountable bureaucracy that undermines the will of the people.
CEI's Iain Murray responds to Duke University historian
Nancy MacLean's 2017 book Democracy in Chains: The Deep History of the Radical
Right’s Stealth Plan for America. He presents two
central points: That American democracy is constrained by design in ways that
promote freedom and economic progress; and that there is a new bureaucratic system
at odds with the Constitution which must be reversed in the interests of
representative government and economic progress.
"Critics of the free market contend that democracy,
as they conceive it, should not be constrained. Yet, it turns out that American
democracy is already constrained—by design. We have explicitly rejected the
idea of 'unfettered democracy.' We accept limitations on the democratic will of
the majority in all sorts of areas. We do not allow a democratic majority to
use its power to ban any form of political speech, to segregate communities on
the basis of race, or to impose religious views or obligations on others,"
Murray writes.
Limits on pure democracy are essential for true freedom.
"The intellectual father of classical liberalism, John Stuart Mill, warned
about the 'tyranny of the majority.' He posited that simple majority rule can
result in a totalitarianism of its own, where, to use more modern terminology,
the in-group can use majority rule to exploit and oppress the out-group,"
the CEI scholar argues. "In other words, democracy itself can be
totalitarian, unless it is implicitly or even explicitly enchained."
Murray defends economic freedom as a human right.
"That view is not new, and it is certainly not an invention of modern free
market economists. Roman law recognized a sovereign right of property. The
first draft of the Declaration of Independence, following the philosopher John
Locke, may have talked of 'life, liberty, and property' as inalienable
rights."
Without property rights, human societies face the tragedy
of the commons, where individuals hoard resources, depleting and wasting them.
"Free access to a resource usually means that the first person to get to
the resource takes as much of it as he or she can, without regard to the
sustainability or preservation of the resource. Property rights originated as a
solution to this problem," he explains.
Murray suggests that MacLean and her allies define
democracy in terms of "the unlimited power to abrogate or expropriate
some property rights in the name of justice." Such a system already
exists, thanks to the New Deal.
"The New Deal, as originally established, gave
government a large amount of control over the economy. Labor unions became very
powerful. The federal government expropriated all gold in private possession, and
a plethora of executive agencies imposed regulations that severely restricted
the enjoyment of private property," the CEI scholar notes. While the New
Deal faced some setbacks, this new system eventually prevailed, enhanced by
Great Society legislation in the 1960s and environmental laws in the 1970s.
This system's threat to private property became
abundantly clear in the Supreme Court case Wickard v. Filburn (1932).
Ohio farmer Roscoe Filburn was growing wheat to feed animals on his own farm,
but the Agricultural Adjustment Act of 1938 imposed federal caps on wheat
production to stabilize prices. Filburn produced wheat beyond the caps, but for
his own use. Even so, the Department of Agriculture fined him. The Court upheld
the fine, claiming that the commerce clause in the Constitution allowed the
federal government to regulate wheat production.
"While Filburn’s own activity did not affect
interstate commerce, the court found, the aggregation of many farmers doing the
same would do so. The Commerce Clause of the Constitution effectively gave
Congress the power to abrogate property rights," Murray explains. This
precedent allowed the Supreme Court to rule that growing marijuana on private property
for personal medicinal use had enough of an impact on interstate commerce for
the government to regulate it (Gonzales v. Raich, 2005).
Besides this undermining of property rights,
entrepreneurs face large hurdles. "The prospective employer faces a
plethora of regulations she must comply with to hire her first employee. There
are more for the fourth, then yet more for the 15th, and so on. Contributions
to mandatory government programs reduce the amount an employer can pay a
worker—and that is before we even mention health care."
When free-market capitalists support reforms like
overturning Wickard, they do not pose a threat to representative
government. "Would restraining such use of the commerce clause be a
radical change? Yes. Would it reduce the power of Congress? Yes. Would it lead
to oppression? I struggle to see how. And is it easy get the Supreme Court to
change its mind? No, manifestly not," the CEI scholar explains.
This kind of systemic change "requires either the
enormously heavy lift of a constitutional amendment or getting the Supreme
Court to find something so important that it mandates ignoring the legal
doctrine of stare decisis—stand by your decisions." As an example, Murray
points to Janus v. AFSCME (2018), in which the Supreme Court
defended the free speech rights of a state employee over the claims of unions
to exert "agency fees." Even this was a heavy lift, and
"collective bargaining is not a constitutional right" while
"freedom of speech is."
Ultimately, there are two constitutional orders in
America today, the CEI scholar argues. "One was established in 1787,
subject to the constitutional amendment process. The other was created in the
New Deal and established largely by court reinterpretations of the
Constitution—Wickard being a case in point. It is the constitutional order of
privileged labor unions, independent agencies free from executive control, and
a code of federal regulations that vastly exceeds the length of the legal code.
This is the constitution of positive rights that MacLean et al are desperate to
defend."
The bureaucratic system weakens the rights Americans
ostensibly enjoy under the Constitution. Courts offer deference to regulatory
agencies, effectively depriving Americans of their right to a fair trial.
"Unless there is clear evidence of an irrational basis for the
interpretation, which is a high hurdle to clear, the deck is stacked against
the challenger," he explains.
"Over the years, Congress has set up 'independent
agencies led by officials who may not be fired by the president except 'for
cause,' such as malfeasance. This conflicts with the executive’s constitutional
duty to see that the laws are faithfully executed," Murray adds. Yet
courts have upheld this bureaucratic system.
Murray points to Wayne Crews' Unconstitutionality Index,
which compares the number of regulations imposed by agencies against the number
of laws passed by Congress. The average ratio over the past decade has been
around 28 to one.
When unelected and unaccountable regulators make legal
decisions over and above the laws passed by the people's representatives, it is
actually the "progressives" who are "enchaining democracy."
"So just who is actually enchaining democracy? The
free marketers who support individual rights or the progressives who have
established a shadow constitution that gives massive power to unelected
bureaucrats?" Murray asks.
As for free markets, they promote flourishing better than
this bureaucracy, the CEI scholar argues. He offers a personal anecdote —
having grown up under democratic socialist Britain before Margaret Thatcher's reforms.
Before Thatcher, Britain was plagued by "poor levels of service,"
"rampant inflation," long delays, and the dead lying unburied in the
streets. Important political decisions were made in "smoke-filled
rooms" between government and unions. Under Thatcher, each of these
aspects of life changed, radically.
"Britain’s example shows that capitalism and
democracy can exist side by side, and produce significant welfare gains,"
he notes.
Yet perhaps more important, "there is empirical
evidence to support the connection between economic liberty and human welfare.
Studies have repeatedly found that societies with greater economic freedom have
higher standards of living and lower rates of crime. Since 1996 the annual
Economic Freedom of the World index, co-published by the Fraser Institute and
the Cato Institute, has charted the relationship between economic freedom and
indicators of social and economic welfare in countries around the world. The
latest edition shows a strong correlation between increased economic freedom
and lower infant mortality and both extreme and moderate poverty. Moreover,
both gender and income inequality are at their lowest in the most economically
free countries."
Murray also cites an Archbridge Institute study showing
that "factors such as the rule of law, prevalence of corruption,
opportunities for innovation, and a dynamic ecosystem for
entrepreneurship" are indicators not just of economic freedom but of
lowered inequality and increased social mobility.
In short, "a market system, other things being
equal, will produce better welfare results than a non-market system."
"Virtuous capitalism strengthens democracy,"
Murray adds. "By providing a better standard of living for all, it takes
the need for certain political decisions off the table. We are already seeing
how Uber and other sharing economy firms are providing an alternative to
unemployment assistance for people temporarily out of work. If by working a few
extra hours via Lyft or TaskRabbit you can get enough money to pay the electric
bill, you may not need to take out a payday loan, which means that regulation
of payday loans becomes less important."
Finally, the CEI scholar addresses the claim that
free-market capitalist reformers are corrupt. "There is no one I know in
the free market academic movement who is in it for the pay! They believe
strongly that free enterprise helps people—and may help the poorest the
most," he writes.
Democracy, far from having been "shackled by a small
cabal of free marketers," can best be restored to America's constitutional
system through the very free-market reforms that liberals oppose. Free-market
and limited-government reforms are a boon for representative government, not
its enemy.
