Democracy and Free Market

By Elizabeth Luper

What is Democracy?

Democracy can be a difficult concept to define. It is often defined differently by different groups. At the heart of the idea of democracy is people ruling themselves—creating their own government, choosing their own leaders, and considering everyone equal. Those who govern must do so at the consent of the governed. Democracy, in the words of Abraham Lincoln, can be expressed as “government of the people, by the people, and for the people.”

Democracy:Essential Elements and Values

• Active participation of the people in governmentIn a democracy, it is important that the people take a significant role. In a direct democracy, the people

create policy themselves. In a representative democracy, the people choose leaders to represent and make policy on their behalf.

• The ability of the people to choose their leadersIf it is a representative democracy, the people must have the right to vote for candidates to represent

them as their leaders.

• Periodic elections in order to elect new leadersThe people must have the opportunity to periodically choose new leaders. These elections should be set

at regular and specific intervals so that a leader does not remain in office indefinitely. The elected leaders should only be elected to rule for a set and limited amount of time before new elections are held and the people choose new leaders.

• Genuine alternatives among candidatesIf there is only one candidate to choose from, or if the candidates are not choices of the people, there is

not genuine democracy.

• Universal suffrageThe right to vote must not be limited to only a privileged few.

• Political rights and freedomThere must be ample freedom to express political viewpoints without fear of retribution or sanctions in

order for true democracy to flourish.

What is a “Market Economy?”

A market economy is an ideal that in its pure form does not actually exist. A true market economy is directed by forces of the economy commonly referred to as the “invisible hand.” Prices, product quality, the amount of goods produced, and other aspects of the economic situation are guided by supply and demand and other economic forces. The government does not take a direct role in directing the economy.

Key Assumptions and Attributes of the Market Model

• Private control of businessesIndividual actors can start businesses, advertise, set prices, buy and sell goods, and set

prices, all without the government dictating how that business may conduct its operations. The government does not intervene in every day business practices.

• Value of goods set by the marketThe principle of supply and demand determines the selling price of products. If the demand

for goods is higher than the supply, the price increases. If the supply of goods is higher than the demand, then the price decreases.

• Distribution of goods set by the marketThe invisible hand of the market determines who accumulates goods and who does not. An

individual who starts a businesses and is successful may accumulate more money and goods than an individual who does not. Individuals who attempt to be successful in the free market may also fail if their goods and services are not in demand.

Is Democracy Consistent with the Market Economy?

The market economy fits very well with democracy for the most part. The same motivation for preferring a democracy is the same motivation for preferring a market economy—the freedom to rule one’s own life. It is an independent spirit that causes people to want to elect their own leaders and have a say in what happens in the government. It’s also an independent spirit that causes people to want to have the freedom to start their own businesses. Furthermore, a democracy helps to protect owners of businesses from having their rights to do business on their own terms from being infringed upon.

Example: Growing Okra

In a market economy, a woman can grow okra in her back yard, pick them, and place them in on a card table in her front yard to sell it to passersby. She can decide to charge a dollar a pound for her okra, or lower the price if she finds that only few people wish to purchase her okra. This woman would oppose a government that would dictate how much okra she could grow or where she could sell it or how much she had to charge for it, because it would infringe on her individual rights. In order to protect her right to sell okra, a democracy would be important to her so she could vote for candidates who would protect her interests as a business owner.

Inconsistencies?

Although generally a democracy and a market economy go hand in hand, there may be times when they seem inconsistent with each other. It is possible that in a democracy, voters may actually elect candidates who favor legislation that moves further towards a command economy on the economic continuum. If businesses obtain so much power over others that people feel that the businesses are the ones infringing on their rights and freedoms, the people may actually turn to the government to petition for relief.

Example: Gas Prices

Gas prices in the U.S. are rising every day. Today they are over $3.50 a gallon and rising. Experts project that they will reach $5.00 a gallon by summer. This is causing many people to look to the government to crack down on the oil companies. The gas prices reflect the supply and demand of the market economy, but people feel that the oil companies are being oppressive. People who are struggling with affording to put fuel in their vehicles would probably be more likely to support the actions of a government that would intervene in the oil industry than they would in other areas of the economy where they do not feel oppressed. In this case, democracy could very well support the government acting in a way consistent with a command economy instead of a market economy.

SummaryThe command market as an ideal type does not actually exist. Governments have always had to step in and regulate when business owners have “misbehaved” in one way or another. The free market is, overall, an ideal way to run an economy. It produces quality products through competition. Inferior companies adapt or fail because of the pressure of the market. A company that mistreats its employees may find it difficult to find laborers. Negative publicity due to their business practices may cause consumers to stop purchasing their products. Unions may also be effective in helping to curb employer abuses. But government intervention can also be a legitimate option, provided they do not overstep their bounds. An overly-intrusive government hampers entrepreneurship and is detrimental to an economy. Democracy is an essential ingredient in making sure this does not happen.

References

Danziger, James N. Understanding the Political World—A Comparative Introduction to Political Science. Tenth Edition. 2011. Pearson.

Ellison, Charles. Lecture—Week 8. Intro to Political Science. Blackboard. 2011.