Capitalism and Democracy I

Someone* said institution that are not self-correcting will not survive.** Basically this is a statement of social evolution. Institutions that can adapt to change survive. However, it is not a statement of survival of the fittest; rather it is a statement of survival of the flexible.

On the face of it capitalism and democracy are self-correcting institutions. 

Capitalism is inherently self-correcting. It is first and foremost a competition.  People with ideas invest or attract capital to create products that compete in the marketplace.  Consumers are free to choose the products they like the best. As in any competition there are losers as well as winners. Money moves from bad or obsolete ideas to ones that work or at least what people want through this process of creative destruction. As a result wealth is transferred to those with winning ideas for enriching the lives of the consuming public with inexpensive and efficient products.  In addition to increasing the material well-being of both the individual and the general public, capitalism gives people the opportunity to maximize their creative talents.  The human spirit is nurtured by the vision of people like Bill Gates, Michael Jordan, and the Beatles who followed their dreams, amassed fortunes, and captivated us with their vision, creativity, and talent. 

Democracy is self-correcting by both by design and purpose.

The structure of government, three co-equal branches with a system of checks and balances, was specifically designed by the founding fathers to be self-correcting. The fact that virtually every country that has a right to call itself a democracy follows this model is a testament to the effectiveness of this design.

Democracy, the system for distributing political power, aspires to distribute that power equally.  The rule of law, one man one vote, and equal justice under the law affirm that the very purpose of Democracy is to put no one person’s interest above another regardless of difference in talent, intelligence, race, or gender. No secular idea has enriched mankind more than the knowledge that we all stand equal before the law.

This reinforces the self-correcting nature of Democracy in two ways.

First, it allows for a marketplace of ideas so that ideas can compete and ultimately the best can rise to the top. 

Second, it gives the citizen a sense of buy-in so they are part of the process and will work to make the process work.

To say that these systems are successful because they can continually evolve is to imply that there is something organic in their nature.  If that is the case then while on the face of it capitalism and democracy are self-correcting it is possible that any given democracy or capitalistic system can age, ossify, and ultimately be replaced by a more nimble and flexible one.

In summary then self-correcting institutions survive.  Capitalism and democracy are self-correcting institutions and therefore are likely to survive. However, any given system can age and ossify and ultimately be replaced.

While capitalism and democracy are both self-correcting systems they do make strange bedfellows. Democracy is the source of our egalitarian principles, which says we are all equal, while capitalism is the mainstay of our meritocracy which implies we are all different and should be differentially rewarded according to our variable talents.  In the next few entries I would like to look at first capitalism then democracy and then create a framework in which they both fit.

*20 or so years ago I read a book review of a biography in the Economist that attributed this idea to the subject of the biography.  I have never been able to retrieve the name of the person who said this. If any of you know who it is I would love to hear from you.

**This is the ultimate “THEY said it” statement and therefore clearly dogmatic. (I readily acknowledge I don’t know who “They” are.) I offer it as a way to look at the systems I mention and see if it fits for you. This also suggests another continuum; should institutions be flexible or steadfast or more negatively relativistic or rigid. Your underlying emotional predisposition toward this continuum will influence how willing you are to accept the premise.