Is Economic Orthodoxy Anti-Democracy?

Yes it is.

The explanation is found in the genesis of classical economics and then in its idealization of the marketplace.

At its onset the modern neo-liberal project was a search for a way of organizing civil society without that organization being imposed in what had hitherto been an overt political, that is power relationship, sense. Thus the literature in the late 1700’s is brimming with applause for what we would now call the market as a method of coordination. In contemporary thinking we seem to forget that the market back then was seen as a supreme organizing principle for all social activity since the then burgeoning economy was the major issue calling for analysis. The market was posited as an alternative to the prior traditional political problem solution to allocation because it allowed the emerging commercial class to locate itself within a social structure facing great stress. The older regime had no space for commerce as it was being redefined – starting with a redefinition of the word itself. Older societies were based on long established, hierarchical, and unvarying governance of all aspects of life, including what we now describe as economic activity. That governance was centered in traditional sources of power. It was thus deeply political, although people at that time would not have referred to it in that way.

The emancipation of society from religion, and the traditions surrounding it, opened the door for the emergence of novelty throughout society. For that novelty to blossom into a new form of society, and, crucially, for industry to replace agriculture in the core of human transactional relationships, the power relations in society had to be re-arranged. A new and powerful class had to accommodated. Yet that class was diffuse and self-reliant. It was assertive and seething under the impress of the older and overtly political organizing principle.

It thus leapt at Adam Smith’s revolutionary idea that society could self-organize. The market became the iconic anti-heirarchy. Organization could be achieved without organization. The paradoxical solution to overthrowing political domination of commerce was to decentralize decision making, not partially, but radically. Everyone became a decision maker. Everyone became a player. Politics was eliminated because it was infused everywhere.

Thomas Paine called this process the substitution of government based upon power by societies based upon the harmonization of personal interests. This is the explicit core of the entire subsequent liberal enterprise. It is utopian. It regards it as possible that society can effect relations harmoniously, without conflict, and objectively rather than subjectively. Smith’s market achieves this dream. Society is magically woven together without the oppression of politics. The market becomes the conduit through which human relationships are arranged. The abstract of the market replaces the concrete of the political. Inter-personal relationships become governed by the impersonal hidden hand. They are thus drained of potential strife, after all the mechanism called a price is established without subjective intervention. It emerges naturally from within the body of a society interacting according to self-interest. There is no government to overthrow, no power to object to, and no political repression. Harmonious, wonderful, and magical the market provides a method of social coordination without the egregious failings of traditional politics.

Thus in our time Milton Friedman could write:

“Adam Smith’s flash of genius was that the prices that emerged from voluntary transactions between buyers and sellers – for short, in a free market – could coordinate the activity of millions of people, each seeking his own interest, in such a way as to make everyone better off … The price system is the mechanism that fulfills this task without central direction, without requiring people to speak to one another or to like one another … Economic order can emerge as the unintended consequence of the actions of many people, each seeking his own interest. The price system works so well, so efficiently, that we are not aware of it most of the time.”

Utopia indeed.

Friedman was living in the 1700’s when he wrote that.

Like most of the original liberal vision articulated fresh after emancipation from tradition, the notion of harmonious self-organization without politics fell afoul of subsequent history. In particular it fell afoul of capitalism. In other words its own logic doomed it. The absence of power relationships inside the magic of a marketplace is an illusion. They persist, if at first only in a highly diffuse manner. The accretion of wealth and its persistence through time undermined the utopia of a pure Smithian vision. Friedman ought to have realized this, but he was so caught up by the purity and glare of the magic that he continued to proselytize naively long after power had debased the original idea.

And it was in opposition to that debasement that societies throughout the industrial world established democracies. In other words societies re-introduced politics as an organizing principle to offset the failings of the market. Democratic governance is overtly political. It is a method of organizing power relationships. It is thus, and also overtly, a constraint on freedom. By this I mean that the utopian freedom of the 1700’s, which remains the core vision of orthodox economic theory, was self-defeating because it failed to take into account the subsequent distribution of wealth. That distribution undermines the price mechanism by concentrating power in the hands of successful capitalists. And, since the market is the central source of social cohesion in the orthodox model, that places capitalists at the epicenter of power. Politics is thus no longer diffused. Everyone is not equal, but traditional pre-industrial style imbalances resurge. That resurgence engenders a response which is to curtail the freedom of capitalists by balancing their interests with those of other groups acting as groups not as individuals.

In this way democracy is a return to the medieval politics of conflicting group interests, now re-articulated in modern terms, and the overthrow of the 1700’s vision of individual interests and harmonious coordination. This reversion is what allowed Marx to refer to traditional medieval governance as the “democracy of unfreedom”.

It is this narrative that leads me to argue that orthodox economics is inherently anti-democracy.

It is also what leads modern market advocates to decry the study of distribution of income and wealth as irrelevant. To them it is. But to a society where politics is no longer expunged, and where the original utopian vision of harmonious coordination has broken down because of the resurgence of power relationships based upon group interests, distribution is crucial. It is paramount. Distribution in this post-utopia is the basis of power. The market manifestly did not usurp politics as the primary coordinating principle of society. The price system does not work as efficiently as Friedman and his ilk imagined. This is not because it is falsely conceived, or improperly articulated. It is because it fails in the presence of humans. It is a pipe dream in the context of human experience. It is in conflict with reality.

So when orthodox economists seek to impose their vision on society, when they advocate the elimination of what they see as barriers to the efficient working of the market, they are seeking to convert concrete realities into illusory, magical and unattainable abstractions. To persist in this endeavor despite the empirical counterpoint is to defy the democratic urge to offset the concentration of power within the market. A concentration which, by its very existence, denies the validity of orthodoxy.

But they persist. They write articles objecting to studies of inequality. They declare inequality irrelevant.

They thus declare their opposition to democracy. To them it is democracy that is irrelevant. To them the market is sufficient governance. It will mediate and resolve everything. Democracy, by recognizing reality rather than pipe dreams, albeit clever pipe dreams, must thus be opposed.

Yes orthodox economists are anti-democracy.