Democracy and Exchange

Democracy and Exchange

Schumpeter, Galbraith, T.H. Marshall, Titmuss and Adam Smith

David Reisman

Democracy is the rule of the people. Exchange is supply and demand. Individualism, agreement, tolerance and choice are the underlying values that make possible the productive collaboration of the market and the state. This book assesses the theories of democracy and exchange of five interdisciplinary thinkers who tried to unite political and economic reasoning into a single theory of moderation and pragmatic management.

Chapter 10: T.H. Marshall: Welfare on the Middle Ground

David Reisman

Subjects: economics and finance, economic psychology, history of economic thought, institutional economics, social policy and sociology, economics of social policy


Schumpeter, reluctantly, regretfully, anticipated a top-down future in which ‘the superior rationality of the socialist plan’ (Schumpeter, 1942: 196) would regiment the uncoordinated and the uninformed into an efficiency maximum that would end the dominion of hunger and want, class exclusion and wasted talent. Adam Smith, who had learned from Rousseau about the repressiveness of the Bastille and from Quesnay about the idle drones who gobbled up the patrimony of the poor, felt it would be better to ‘open the floodgates’ (Smith, 1776: II, 18) in order to entrust the wealth of nations to the private vice that would at least supply the public good. Schumpeter predicted that prosperity would come to mean compulsion. Smith recommended a decentralised order where each individual would be a king. Hayek was absolutely clear that the either/or put an end to the debate: ‘We face here a real alternative . . . There is no third possibility’ (Hayek, 1944: 94). Where there are two peaks and that is all, the subtleties and the modifications fall by the wayside. Schumpeter saw a role for small-firm enterprise, flexible pricing and humanitarian welfare because value added does not satisfy the hungry soul. Smith was in favour of the Usury Laws, the Navigation Acts and a State-run Post Office that would make good profits to keep the tax rates down. The ideologues showed as little interest in Schumpeter’s autonomy that escaped the plan as they did in Smith’s paternalistic leadership that civilised the snatching hand. The bipolar constituency had no real...

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