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Capitalism vs. Democracy: Pick Your Core Value

Fellow blogospherian educator LK gets ready for the school year by posing the following essay question:

...[D]emocracy must write the rules for capitalism, not the other way around.

In what ways are the observation and conclusion valid or invalid? Give concrete examples from the United States that illustrate either validity or invalidity. If the conclusion is invalid, explain why capitalism should write the rules for democracy [LK, "Quotation Of The Day: Capitalism, Democracy And An Essay Question Edition," The Displaced Plainsman, 2012.08.06].

That classroom question got to be worth some merit pay. Let me see if my response can win some extra credit.

Capitalism is an economic system. Democracy is a social system. We do not serve the economy; the economy serves us. Because the economy is a means to the end of a just society, democracy should write the rules for capitalism.

We build community to protect human dignity, liberty, and security. Democracy embraces and protects those three values. Democracy acknowledges the dignity of every individual by granting every individual an equal right to participate in community decision-making. By acknowledging that dignity, democracy provides liberty by allowing us to live, as Rousseau put it, in "obedience to a law which we prescribe to ourselves." While some fear that democracy will allow an angry majority to tyrannize a minority, the respect for dignity and liberty inherent in democracy provide more security, more universal protection of minority rights, than does rule by an arbitrary few, a capricious dictator, or anarchy.

Capitalism has practical effects that protect dignity, liberty, and security. But its core goal is to distribute goods efficiently, not to secure particular values. In pursuit of its economic goal, capitalism can take away dignity, liberty, and security. In capitalism, one's dignity, the ability to participate in the system, is a function of one's wealth. Capitalism leaves some individuals with no wealth and no ability to participate. Without wealth, one has no practical liberty or security in a capitalist system. In pursuit of economic efficiency, capitalism inevitably leaves some citizens behind.

To protect fundamental social values, we must check capitalism with democracy. Adam Smith recognized that capitalism alone could not meet all needs. Economic competition will not protect the dignity, liberty, and security of all citizens equally against invaders and criminals. Economic competition will not produce roads, parks, or schools that all citizens can use. Smith saw meeting those needs as proper roles for government. Democracy allows all citizens to work together through government to meet those needs.

We can see the primacy of democracy over capitalism in the United States' policies during World War II. Faced with the Axis threat, the United States did not allow the normal capitalist system to determine the use of resources. The government imposed rationing on numerous consumer products to ensure a reliable supply of materials for military production. Still, in the middle of global war, the government stuck with democracy, giving ultimate authority over those crucial economic decisions to all voting citizens.

Democracy and capitalism both have their perils. But democracy provides the moral check that amoral capitalism needs. If we want a society in which the economy is a tool toward higher ends than the production of profitable widgets, we must use democracy to write the rules for capitalism.

Whew! Now time for some breakfast, produced by the wonderful capitalist machine of Topco Associates of Skokie, Illinois!


  1. Steve Sibson 2012.08.07

    Both capitalism and democracy are forms of socialism and in the case of America, the capitalists control the government by controlling the democracy.

  2. Justin 2012.08.07

    Steve, that's the most poignant comment I've seen from you to date.

    I'm an unabashed capitalist, but that doesn't mean I think the capitalists should control the democracy.

  3. Jay BK Slater 2012.08.07

    I believe a discussion on differences between crony capitalism and capitalism is now warranted. Perhaps the economist can shed some light on this? I think we are seeing more examples of crony capitalism in SD these days. PP and SOS, DD and Manpower, Immigration and Dairy...just my perspective today.

  4. Justin 2012.08.07

    It is really a question for political scientists, not economists, there really isn't any quantitative analysis I can think of to perform here.

    Most university economists would argue, though, that the amount of money flowing into political campaigns through PACs serves to distort the free market economy. If you recall it is illegal for a corporation to contribute to a political campaign. However it is perfectly legal for the CEO of a business to have his own PAC, contribute money from his corporation to it, and then pass the money onto the campaign, or if he prefers just make his own commercials pushing the message he wants.

    The best thing we can do is to get rid of the governor's secret "development fund". He can still give tax abatements to people, but it needs to be public. That way we won't have incongruities like cutting the education budget by $50 million while giving an unknown amount to Keystone XL.

    As the 2nd least transparent state in the union, I totally agree with you on crony capitalism. It isn't a free market when the market leaders own the politicians that make laws in their favor at the expense of their competitors.

  5. Justin 2012.08.07

    To correct myself, I sincerely hope he doesn't ever give tax abatements to "people", rather to businesses. Under Citizens United, there is supposedly no difference though, so who knows if it isn't public?

  6. Jay BK Slater 2012.08.07

    Two November ballot items speak directly to this topic with referred law 14 and constitutional amendment P. The "Large Project Development Fund" specifically limits a major portion of SD current economy. I am curious on where the PUC candidates stand on this issue which appears by examples given to address power generation, power transmission and wind energy. Of note is also agricultural processing, can anyone say Bel? Wonder why Aberdeen meat processing plant remains unfinished? I get a little hesitant when the carrot contains something worthwhile like wind energy but skips over the hook for ag processing. SD AG explanation further goes on to list ineligible projects such as retail, housing, lodging, health care services and the raising or feeding of livestock. With the cap being at $5mil doesn't leave much room for small business or ag production which are mainstays for SD economy. There are plenty of other reasons for business to come to SD and making money is the most important. There is a reason they call it an investment.

  7. caheidelberger Post author | 2012.08.07

    Referred Law 14 is an excellent example of the crony capitalism that we all seem to agree is not real capitalism. I will agree with Steve that capitalism and democracy as practiced in the U.S. are far from perfect and are far too subject to the will of the wealthy. But that does not change the philosophical point that even when we are doing both democracy and capitalism right, Democracy must write the rules. Using government to hand favors to cronies in business is unacceptable, but there are good community-building reasons for us to vote, via democracy, to bend the rules of capitalism and direct resources in ways that capitalism ungoverned would not.

  8. Steve Sibson 2012.08.08

    Cory what is wrong with voting with the dollars in your pocket in a truly free market? We don't have a free market in America today because government has gone beyond its limited scope. The result has been a centralization of wealth via public/private partnerships that is now including education. Such was the case at the Mitchell MTI yesterday where Noem meet with wind industry business interests regarding the production tax credit renewal. Just another example of crony capitalism.

  9. caheidelberger Post author | 2012.08.08

    I vote with my dollars all the time, Steve, whether I'm buying shoes or tipping waitresses. There's nothing wrong with using your money in a free market to signal how well certain products and services meet your needs.

    However, in that system, people with more money get more votes. On political questions, you and I agree that's unfair. Thus, we must check the workings of the free market with government to make sure the influence of money does not spill over from economic choices to broader community rule-making.

  10. Testor15 2012.08.08

    Steve and all others, in the American system of today, who has more power to influence anything, the citizens of the US, the US government or the multinational corporations? The government is bought and paid for by the multinational corporations who have no allegiance to any nations border or citizens. We now have corporations with American birth who now only salute the corporate flag controlled by the likes of Wal-Mart.

  11. Justin 2012.08.08

    "We the people" still have one great advantage over the payola pushers: corporations don't get to vote.

    Which is why education and free speech are so important. Cynics might say that's also why the GOP is anti-education, going as far as opposing "critical thinking skills" in the Texas GOP platform. I hope the people of SD are educated enough to keep that nonsense and DDs anti-education bill off our own books.

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