Capitalism, Liberalism and Democracy pt.II

In my first post, I presented a brief account of the historical tensions between liberalism and democracy, with particular attention on the levelling threat that democracy was thought to pose to elite forms of power – in particular, private property. I broke the narrative off at the end of a discussion regarding the English notion of ‘virtual representation’, first propounded by Sir Thomas Smith in the sixteenth century and re-articulated by Burke in the late eighteenth century in the midst of the radicalism inspired by the politics of the French Revolution. In this post, I’d like the carry the narrative forward by looking at the contribution of the American ‘Founding Fathers’ as well as the subsequent development of modern liberalism in the nineteenth and twentieth centuries, with a particular focus on Hayek.What the pro-federalist writers of the post-revolutionary period did was to synthesize representation with democracy. While it may be the case that America was closer to a ‘property owning democracy’ than Britain ever could be, given the freer access to land (particularly after the forcible removal of aboriginal peoples), there still existed important class differences between various classes of property-owners. In particular, the divisions between the oligarchs, be they large landowners, merchants or financiers, and the ‘plebeian’ element, be they small farmers, shopkeepers or craft-workers, were still significant enough for Madison to consider them to be the foundation of political conflict—the infamous ‘factionalism’ of ‘popular governments’ expressed in Federalist no. 10. If the franchise cannot realistically be restricted to the propertied (due to the popular mobilization required for the revolutionary war), or if a property qualification becomes difficult given the wider distribution of small scale property, then at least political office – both legislative and executive – could be restricted to only those of the propertied elite who would ‘democratically’ represent the lower classes in Congress through popular election. This is precisely the prescription put forward by Alexander Hamilton in response to Brutus’ notion of a kind of ‘corporate’ representation that proposed the inclusion of all classes (bar women and slaves of course) in the legislative assembly on the basis of their ‘proportionate weight’. While Brutus’s proposal is not necessarily democratic, it goes further in trying to accommodate the class divisions within American society. Yet, Hamilton famously rejects this in Federalist no. 35 by introducing the idea of ‘representative’ democracy:

The idea of an actual representation of all classes of the people by persons of each class is altogether visionary [i.e., illusory]… Mechanics and manufacturers will always be inclined with few exceptions to give their votes to merchants in preference to persons of their own professions or trades. Those discerning citizens are well aware that the mechanic and manufacturing arts furnish the materials of mercantile enterprise and industry. Many of them indeed are immediately connected with the operations of commerce. They know that the merchant is their natural patron and friend; and they are aware that however great the confidence they may justly feel in their own good sense, their interests can be more effectually promoted by the merchant than by themselves. They are sensible that their habits in life have not been such as to give them those acquired endowments, without which in a deliberative assembly the greatest natural abilities are for the most part useless; and that the influence and weight and superior acquirements of the merchants render them more equal to a contest with any spirit which might happen to infuse itself into the public councils unfriendly to the manufacturing and trading interests. These considerations and many others that might be mentioned prove, and experience confirms it, that artisans and manufacturers will commonly be disposed to bestow their votes upon merchants and those whom they recommend. We must therefore consider merchants as the natural representatives of all these classes of the community.

The problem of property and democracy takes on a bit of a different form in English liberalism. Utilitarian liberalism emerged in the late 18th and early 19th centuries as a radical attack on the landed aristocracy. Benthamite liberalism broke with the natural rights tradition to propose a doctrine based on the greatest happiness of the greatest number. While Bentham’s formula clearly had implications for the ‘freeing up’ of private property, it is not entirely the case that he was a simple shill for ‘laissez-faire’. Frederick Rosen has noted the problems of evidence associated with this interpretation.  But whatever the case, the upshot of utilitarianism was that it believed that denying groups political rights implied that their happiness was excluded from that which government was supposed to maximize. There was a radical levelling potential to it, manifest in its provision that ‘push pin is as good as poetry’. Noel Thompson, in his excellent book, The Real Rights of Man examines the relationship between utilitarianism and emerging ‘working class political economies’.

In any event, the radical tendencies of utilitarianism were enough to prompt J. S. Mill to attempt an elite revision of the doctrine. While I do not want reduce Mill to an ideologue of industrial capitalism – after all, his writings on socialism were of quite a different kind from other more reactionary liberals of the time – he is clearly wary of what the tendency for democracy to result in ‘class legislation’ (implying, of course, that pre-democratic legislation produced by a propertied elite are not class based).  While socialism was not an absolute evil in its own right, Mill believed that Western civilization was not yet ready for it. Reforms needed to be put in place that defended the rights of property from the class legislation of the growing working class (and their affiliated political parties) while incorporating them into social order by means of civic education and plural voting.

But Mill also articulated another reform that will become more important for the neoliberal response to popular challenges to the oligarchic interests increasingly embedded within liberal democracy: the unelected legislative commission. In order to prevent the formulation and passage of class legislation, it was not enough to ensure that the votes of the educated and the propertied outweighed the votes of the uneducated working class. The legislative assembly had to be divested of the power of formulating legislation entirely. This power would be granted to an appointed commission that was independent of the democratic process. Legislation would be drafted and submitted to the legislative assembly whose sole function was to debate, ratify or reject. Democratically elected legislators were not really legislators at all:  they were divested of the ability to initiate and amend legislation.

The Neoliberal Era

No doubt many today would snicker at the idea that the financial elite are the ‘natural representatives’ of the rest of us. The widening gulf between an increasing desperate working class and a declining middle class on the one hand, and what can only be referred to as a financial oligarchy whose profits and power seem to grow with each turn of the current crisis, has become so evident as to render any notion that the latter can act in – let alone be aware of – the interests of the former absurd.

Yet, the problem that confronted liberals in the 17th, 18th and 19th centuries was somewhat different than what they are confronted with today. If representation by elites is increasingly seen for what it is, an oligarchic façade; if plural or weighted voting is ‘democratically’ unacceptable; and if the palliative effects of ‘civic education’ are running headlong into the material realities of downward class mobility, then the liberals of today – the neoliberals – need more radical solutions to the problem of class, capitalism and democracy.

While neoliberalism claims to be the true heir of the liberal tradition (in contrast to the ‘collectivism’ of the New Liberalism associated with TH Green, Bosanquet, Hobhouse and Dewey), it also owes a debt to conservative critiques of democracy. One of the most important influences in this regard is Joseph Schumpeter. Schumpeter’s contribution to the history of democratic ideas is twofold. First, he undermines the conceptual foundation of classical liberal notions of popular sovereignty that he bizarrely associates with a ‘classical’ conception of democracy in the late 18th century. Popular sovereignty, he argues, is an illusion. There can be no ‘general will’. Democracy, therefore, cannot be understood as the expression of the ‘will’ of ‘the people’. It is not the product of popular sentiment. Rather, the relationship works the other way. Leaders create democracy; but this requires Schumpeter’s second contribution to democratic thought:  the transformation of democracy into a method of choosing a government. What Schumpeter did was ‘democratize’ the elite theories of Pareto and Mosca, who argued that all forms of government were characterized by competing elites.

It is quite telling that, by the interwar period, elite theorists like Schumpeter believed that even the oligarchic democracy of the Founding Fathers to be too radical in its potential. It is not enough to have elites representing the popular classes through some kind of democratic process. The very idea that elites must represent the demos is now jettisoned by Schumpeter. But Schumpeter is no neo-liberal; he was in fact a conservative.  But his elite conception of democracy as a method of forming government would influence the upcoming generation of neo-liberal intellectuals such as Hayek.

Hayek’s work is riddled with the antimonies of liberal thought. On the one hand, there is a desire to associate liberalism (now defined in the terms set by Mises as being fundamentally rooted in the demands of property associated more clearly with capitalist forms of private property) with democracy. On the other hand, Hayek never ceases to distinguish – quite rightly – between liberalism and democracy. The first position leads him to synthesize Schumpeter’s ‘democratic method’ with a liberal order defined in capitalist terms. The purpose of doing this is to support Hayek’s claim that any form of deviation from a liberal economic order will result in totalitarianism. Thus, Hayek clearly rejects Schumpeter’s concession that democracy was just as compatible with socialism as it was with capitalism.  Yet, at the same time, Hayek argued that democracy could indeed threaten the liberal order that he held so dear.

Two options were therefore available to the neoliberal project. The first road was a rather unpleasant one. This led to the ‘liberal dictatorships’ of neo-liberal strongmen like Pinochet. Hayek infamously said that he preferred a ‘liberal dictator to democratic government lacking liberalism.’ Of course, Hayek prefaced these remarks with an important qualification:  he opposed dictatorships as long term institutions and only supported them ‘for a transitional period’. But of course, all dictatorships are ‘transitional’.

The second road leads to what Hayek called the ‘rule of law’ as opposed to legislation. It was an error to think that law and legislation were one and the same. In his magnum opus, Law, Legislation and Liberty, Hayek went to great lengths to differentiate the two. Law referred to abstract ‘rules of just conduct’, whereas legislation referred to the particular rules of government administration. The former protected liberty while the latter undermined it. A ‘limited democracy’ would therefore be subordinated to the rule of ‘Law’. It needs to be said, however, that Hayek’s invocation of law as distinct from legislation dates back to Cicero’s invocation of natural law over and against civic law. Cicero used natural law to declare certain distributive laws formulated by popularly supported Tribunes null and void, just as Hayek would use Law to render any political agenda motivated by social justice inoperable and ‘unconstitutional’. The market order would be protected from the incursions of legislation by the rule of ‘Law’.

The whole point of all this is to seriously circumscribe the terrain of politics and establish a much more formalized separation between the political and economic spheres of social life under capitalism. If there is one thing that can bring together the various strands of neoliberal thought and politics, it is this goal. But in doing so, neoliberals have only subjected the political to the arbitrary rule of the market. It is neoliberal fantasy to believe that the market operates according to some non-arbitrary means. Neoliberals like Hayek decry ‘arbitrariness’ in the political sphere while fetishizing the ‘spontaneous order’ that allegedly characterizes the economic sphere. In order to absolve powerful economic actors of the charges of ‘tyranny’ leveled at states and governments, neoliberals disingenuously insist on the unintentional outcomes of market activity.


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