Democracy and Exchange
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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.
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Chapter 3: Schumpeter on Democracy: The Economic Approach

David Reisman


The classical theory posits that the people hold a definite and rational view which a passive State obediently translates into law: ‘Government is nothing more than a national association acting on the principles of society’ (Paine, 1792: 169). Classical democracy is a system in which the issues are debated and decided upon by the citizens. It is a tâtonnement in which public opinion converges on solutions and social consensus dictates the road. Schumpeter alters the stance. Democracy, he says, should be defined not in terms of endstates but of procedures, not of soups but of cooks, not of policy options but of elected office holders. Democracy means that the people vote in the governors who will thereupon take over the collective choices: ‘The principle of democracy . . . merely means that the reins of government should be handed to those who command more support than do any of the competing individuals or teams’ (Schumpeter, 1942: 273). Democracy does not mean that the grassroots actually settles the issues: ‘Democracy is the rule of the politician’ (ibid.: 285). It means only ‘that the people have the opportunity of accepting or refusing the men who are to rule them’ (ibid.). Democracy means not that the people rule but that the people delegate. Schumpeter’s interpretation of democratic politics as the selection and reappointment of a trusted nanny will be considered in ‘The political market’, the first section of this chapter. The second section, ‘ “Policy is politics”: Downs and Pareto’, travels from public choice to irrationality...

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