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Thursday, April 7, 2011

Democracy and Capitalism: On Managing Equality and Inequality

Both capitalism and democracy claim to maximize individuals’ freedom—capitalism in the economy and democracy in politics.  In spite of this superficial commonality, Henry Brands points out that democracy “depends on equality, capitalism on inequality. Citizens in a democracy come to the public square with one vote each; participants in a capitalist economy arrive at the marketplace with unequal talents and resources and leave the marketplace with unequal rewards.” (1) In fact, a capitalist economy cannot operate without inequality. According to Brands, “The differing talents and resources of individuals are recruited and sorted by the differential rewards, which reinforce the original differences.” (2)


It is difficult to concurrently embrace democratic equality and capitalistic inequalities because they have qualitatively different sources, at least theoretically speaking. Whereas Jefferson's democratic equality is based in natural rights that do not depend on being recognized by a government (a notion from John Locke), Adam Smith's capitalism is based on human nature. Whereas natural rights are based in what it means to be human as a self-aware being of a rational and sentimental nature, Smith's human nature is based on self-interest, which in turn is based on the instinct of self-preservation. Even though economic considerations may lead us to conclude that people are unequally able to preserve themselves, Thomas Hobbes argued that a basic equality exists in self-preservation because any person can be killed in his or her sleep.  In other words, none of us is immuned from the possibility of being killed.  However, this basic condition of equality seems very remote next to the inequalities that are enabled by differential wealth. Such differences in wealth may well be more than reinforced by capitalism.

Does capitalism reinforce the original differences in talent and resources by merely reflecting them, or does the system multiply them? For example, if a capitalist invests the surplus gained from her talents or resources to gain still more, are the original differences merely reinforced? A series of profitable decisions, for example, may display a multiplier effect. Furthermore, if the capitalist uses her surplus to restrict other capitalists from being able to exercise their talents and resources (e.g., cornering the market), is not more involved than reinforcement?

In terms of the impact on democracy of the widening inequalities of capitalism, the “one citizen, one vote” dictum may become a chimera. For instance, historically, employers and unions in New York pressured their employees/members to vote a certain way. It was not unheard of for candidates to buy votes outright. More subtly, the imprint of corporate interests can perhaps be discerned not only in the “third party” political advertisements, but also through surrogates whether in office or the media.  For instance, a health insurance company lobbyist revealed in 2010 that the “death panels” line thought to be sourced in Sarah Palin had actually come from the lobby in an effort to kill the public option in health care reform. Such an option was not in the interest of the concentrations of capital known as insurance companies.

In short, the exaggerated inequalities that come with the denouement of capitalism, particularly in its mature stage, compromise or even extirpate the basis of equality in democracy.  That is to say, greater and greater inequality monetarily puts a republic at risk. Indeed, the corporate form itself may be inherently antithetical to republican ideals.

Click to add a question or comment on equality in democracy amid income inequality.

1.      Henry W. Brands, American Colossus: The Triumph of Capitalism 1865-1900 (New York: Doubleday, 2010), p. 5.
2.      Ibid.