Montreal, November 8, 2003  /  No 132
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Pierre Lemieux is an economist and an author.
by Pierre Lemieux
          Libertarians are usually not very kind to democracy. In his 1908 Voluntaryist Creed, Auberon Herbert wrote: "Because you can collect three men on one side, and only two on the other side, that can offer no reason – no shadow of a reason – why the three men should dispose of the lives and property of the two men, should settle for them what they are to do, and what they are to be: that mere rule of numbers can never justify the turning of the two men into slaves, and the three men into slave owners."(1) The moral status of what Bertrand de Jouvenel called "totalitarian democracy" is bleak indeed.(2)
          However, the problem remains of finding a political system that protects liberty and prosperity as well as possible. In this context, perhaps libertarians have been too severe on democracy.  
          A long tradition of economic analysis, starting with Thomas Hobbes' 1651 Leviathan, argues that we need the state. Without it, social cooperation would yield to a "perpetual war of every man against his neighbour." "In such condition," Hobbes explains, "there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short."(3) 
          Mancur Olson is one the contemporary economists to have formalized this argument.(4) He argues that a "sedentary bandit" – i.e., a state – is better than the "roving bandits" who would dominate a large stateless society. The reason is simply that the sedentary bandit can exploit his victims over a longer-term horizon and will therefore, exactly as slave master, avoid overexploiting them. He will redistribute his subjects' incomes to himself only up to the point where reduced incentives would lead to diminished tax returns. A roving bandit, on the contrary, would plunder, kill and rape, as he is not sure that another bandit will not have served himself next time he comes around. Hence, individuals are better under state tyranny than in violent anarchy. 
          This line of argument is quite powerful. It implies that the state does not steal the money it taxes away for its own benefits, because without its protection services people's incomes would be lower than their actual after-tax incomes. Powerful but not totally convincing. It is not sure that anarchy is unstable, that the state's monopoly of violence is more efficient in maintaining peace than spontaneously evolved social rules. But then who knows? At any rate, let us assume here that the state will be with us – or against us – for some time. The question then is, what kind of state will minimize the exploitation of its subjects? What kind of state will return to citizens the largest part of the benefits it generates? 
          The main point of Olson is that democracy, even in the sense of a tyranny of the majority, is better than autocracy. A selfish majority is led, as by an invisible hand, to leave more of the benefits of the state to its subjects. In short, the argument is as follows. The majority profits from general prosperity not only through the taxes it redistributes to itself, but also from market transactions. It will therefore attach more weight to the disincentive effects of tax-financed redistribution, and stop redistributing at a lower level than an autocrat (or a ruling minority) would. The larger the ruling majority, the less it will exploit the minority, because more people have a larger stake in general prosperity. At the limit, in a "consensual democracy," i.e., in government by unanimity, each individual will pay only his share of public goods financing, and nobody will be exploited. 
     « What kind of state will minimize the exploitation of its subjects? What kind of state will return to citizens the largest part of the benefits it generates? »
          The ideal consensual democracy, then, is immune to the tyranny of the majority. Actual democratic regimes are far from this ideal: they are more of the majoritarian sort, when they are not highjacked by minority interest groups. But, according to Olsonian theory, the larger the majority, the less tyrannical it will be. The larger the stakes individuals have in the system, the lower their interest to use it to exploit others. The more encompassing democracy is, the more it naturally limits itself. 
          This argument is not watertight. It modelizes exploitation exclusively from a taxation point of view, neglecting the rulers' incentives to exert surveillance and direct control over their subjects. It neglects the endogenous danger of individuals becoming too trustful of a democratic regime in which they recognize themselves. It assumes away the problem of collective action – i.e., of how individuals belonging to the majority act together in their own interests. It underestimates the temptation of special interests, including politicians and bureaucrats, to highjack the system. 
Direct Democracy 
          However, these very qualifications suggest a solution to the tyrannical drift of democracy: direct democracy, i.e., the institutionalization of popular referenda and citizens' initiatives. I had always been suspicious of direct democracy until I read Reuven Brenner's recent book, The Financial Century,(5) where it is presented as the regulating equivalent in politics of what financial markets are in economic life. Brenner shows how direct democracy allows the Swiss to secede from local polities that don't offer them what they want – "moving borders on paper, rather than forcing people to move with their feet" – and, more generally, how it keeps central power in check. According to Brenner, similar beneficial effects can be seen in the American States that allow citizens' initiatives. As for the tyranny of the majority, argues Brenner, this fear has never materialized where direct democracy has been tried. 
          Consider the complex, opaque and unreadable laws that rulers and loophole-seeking interest groups now impose on the citizenry. For example, the U.S. Internal Revenue Code occupies 21 megabytes of disk space, which makes for 2.8 million words, and would fill fifteen floppies.(6) Assuming that the average citizen can read these 6,000 single-spaced pages of tax jargon at the rate of two minutes per page, it would take him more than one month full-time. A credible argument can be made that no popular referendum would ever approve such laws. Perhaps, indeed, any law proposed by the government should be distributed in paper format to every voter so that he can weight, in pounds, what he is asked to vote for. 
          Another major benefit of direct democracy would be the destruction of the political class and the humbling of the bureaucratic elite, which is indeed why both exploiting classes are against it. The citizen would be dignified, compared to the contempt in which he is held by the ruling classes. Consider how paternalistic, public-health busybodies deem the citizen unfit for deciding what to consume or smoke, and too irresponsible to carry a gun without the authorities' approval, while paradoxically he becomes competent enough to choose his masters once every four years. To let such subhumans vote, the rulers must really think that voting is of no importance – which, in the present system, is by and large true. Time to change the system. 
          Like any democratic regime, direct democracy must be limited by constitutional rules, and qualified majorities should be required to modify these. For instance, freedom of political debates and diversified sources of dissent must be preserved, which argues against state regulation of referendum campaign financing. There is no guarantee that direct democracy would preserve liberty, but perhaps it should be revisited, not as a divine-right regime, but as the only practical system which, at this stage of mankind's history, can simulate consent and protect us from state control and exploitation. 
1. Reproduced in The Right and Wrong of Compulsion by the State and Other Essays by Auberon Herbert (Liberty Fund: Indianapolis, 1978), p. 327.  >>
2. Bertrand de Jouvenel. On Power: The Natural History of Its Growth [1945] (Indianapolis, Liberty Press, 1993), Chap. 14.  >>
3. Chap. 21 and 13, available at>>
4. A non-technical treatment can be found in Mancur Olson, "Dictatorship, Democracy, and Development," American Political Science Review, Vol. 87 (1993), pp. 567-576. See also Martin C. McGuire and Mancur Olson, "The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force," Journal of Economic Literature, Vol. 34 (March 1996), pp. 72-96.  >>
5. Reuven Brenner, The Financial Century: From Turmoils to Triumphs (Toronto: Stoddart, 2001).  >>
6. See U.S. Tax Code On-Line:>>
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