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Bryan Caplan

Mises and Bastiat on How Democracy Goes Wrong, Part I

Bryan Caplan*

 
"It is only to be expected that the general public prefers to blame political insiders—rather than itself—for bad policies. But economists also... rarely put the man in the street on their list of suspects."
Economists are habitually disappointed by what governments do. Dictatorships are the worst offenders, featuring a rogue's gallery of impoverishing policies from farm collectivization to backyard steel mills to expulsions of minority merchant classes. But democracies also frequently pursue policies—like protectionism and price controls—that every introductory economics textbook concludes are a costly burden upon the general public. How is this possible? How can majoritarian politics durably sustain policies harmful to majority interests?

The most popular way to resolve this puzzle is to blame special interests for undermining the democratic process. Protectionism hurts most people, but the minority which benefits lobbies heavily on its behalf. The main problem with this account, however, is that public opinion research—not to mention everyday conversation—routinely finds that the policies that economists do not like are popular. The plot thickens.

 

For biographies of Frédéric Bastiat and Ludwig von Mises see the Concise Encyclopedia of Economics.

Before going back to the drawing board to come up with a new explanation, it is a good idea to at least investigate whether anyone in the history of economics has already grappled with these difficulties. It turns out that two economists—one French, the other Austrian—worked out a rather sophisticated account long ago. The first is Frédéric Bastiat, writing in the mid-19th century. The second is Ludwig von Mises, who published most of his relevant work a little less than a century later.

One striking feature of the Bastiat-Mises view is that politicians are actually tightly constrained by public opinion. On their account, democratic competition keeps elected officials in line; if they deviate from majority preferences, they lose elections and their jobs. Bastiat affirms that "[P]ublic opinion, whether enlightened or misguided, is nonetheless mistress of the world."1 Vestigial departures from democratic principles in contemporary France do not impress him: "Political power, the law-making ability, the enforcement of the law, have all passed, virtually, if not yet completely in fact, into the hands of the people, along with universal suffrage."2 His assessment of modern democracy would probably be even less qualified.

Mises elaborates on Bastiat's point, freely comparing politicians to businessmen. Both face intense competitive pressure:

A statesman can succeed only insofar as his plans are adjusted to the climate of opinion of his time, that is to the ideas that have got hold of his fellows' minds. He can become a leader only if he is prepared to guide people along the paths they want to walk and toward the goal they want to attain. A statesman who antagonizes public opinion is doomed to failure... [T]he politician must give the people what they wish to get, very much as a businessman must supply the customers with the things they wish to acquire.3

The last sentence is especially striking because Mises has boundless confidence in the propensity of entrepreneurs to serve consumer interests:

In the capitalist system of society's economic organization the entrepreneurs determine the course of production. In the performance of this function they are unconditionally and totally subject to the sovereignty of the buying public, the consumers. If they fail to produce in the cheapest and best possible way the commodities which the consumers are asking for most urgently, they suffer losses and are finally eliminated from their entrepreneurial position.4

In modern terminology, neither Bastiat nor Mises worries much about democracy's "principal-agent" problem, its ability to match voters' wishes and leaders' actions.

How then can they share others economists' judgment that democracies frequently select policies contrary to majority interests? The answer is that they question the wisdom of public opinion. According to Bastiat and Mises, systematically mistaken economic beliefs—or, as Bastiat terms them, "sophisms," are widespread.

To take his most famous example, Bastiat accuses the public of "broken window" thinking—ignoring opportunity costs.5 Its members favor wasteful government programs because they fail to consider the alternative uses of wasted resources. They want a large military in peacetime because they implicitly assume that there is nothing else for discharged soldiers to do. They favor fruitless public works projects to "create jobs," not realizing that the taxes required to fund these projects destroy as many jobs as they create.

Bastiat similarly argues that democracies adopt protectionism because the majority mistakenly thinks that imports are bad for the economy: "Protectionism is too popular for its adherents to be regarded as insincere. If the majority had faith in free trade, we should have free trade."6 Unfortunately, popular views remain influential even if they are wrong, or positively confused. "When one of these fundamental errors... becomes firmly established as a conventional judgment, unquestionably accepted and agreed to by everybody, it tends to proceed from theory to practice, from thought to action."7

When Bastiat rails against popular "sophisms," he is often misinterpreted as merely an economic educator. But his point is much deeper. He is not just describing the public's errors, and urging the economics profession to correct them. He is also asserting that until those errors are corrected, they will influence policy in destructive directions. In other words, Bastiat is laying out a descriptive theory of how real-world politics works: The further the average citizen's views are from the truth, the lower the quality of policy. Or as Mises explains:

Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disaster.8

Bastiat anticipated the rise of socialism, but Mises actually lived through it. It is therefore unsurprising that Mises above all lamented the public's tendency to underrate the economic benefits of the free market and overrate the economic benefits of government ownership. Thus, in the conclusion of his Socialism, he bluntly states that:

The world inclines to Socialism because the great majority of people want it. They want it because they believe that Socialism will guarantee a higher standard of welfare. The loss of this conviction would signify the end of Socialism.9

Mises also highlights more specific economic misconceptions, and links them to narrower policies. Like Bastiat, he blames protectionism on the simple-minded but popular view that imports are bad: "The ultimate foundation of modern protectionism and of the striving for economic autarky of each country is to be found in this mistaken belief that they are the best means to make every citizen, or at least the immense majority of them, richer."10 Mises similarly observes, in a passage highly relevant to permanent high unemployment in modern Europe's heavily regulated labor markets, that the average citizen fails to connect the dots: "Public opinion fails to realize that the real cause for the permanent and large unemployment is to be sought in the wage policy of the trade unions and in the assistance granted to such policy by the government."11

How original is the Bastiat-Mises explanation for poor economic policies? Modern economists often discuss voters' "rational ignorance"—not bothering to learn about problems that they as individuals can do little to change. But Bastiat and Mises deviate from the usual story in two interesting ways.

For one thing, most economists focus on voters' lack of incentive to learn about the details of policy: Which industry is getting what kind of government help, who is doing what to whom. This counterfactually assumes that state intervention is unpopular to begin with. To come to terms with the facts, it is necessary to home in on more elementary errors, as Bastiat and Mises repeatedly do. Protectionism exists because the electorate thinks it is a good idea, not because they do not know exactly which industries are benefiting.

Bastiat and Mises also recognize, as few modern economists do, that it is often implausible to see the public's errors as mundane ignorance. If the electorate merely knew little about economics, its members should essentially be agnostic on the subject. In practice, however, they often enthusiastically support protectionism, labor market regulation, and other misguided policies in spite of their lack of study.

At the risk of being rude, both Bastiat and Mises characterize the opponents of basic economics as willfully illogical "fanatics" rather than simply uninformed. Mises does not disguise his irritation: "The fanatics obstinately refuse to listen to the teachings of economic theory. Experience fails to teach them anything. They stubbornly adhere to their previous opinions."12 Bastiat is more eager to build a dialogue, but he too feels like he is up against a brick wall of dogmatism: "It is not my expectation that when the reader puts down this book he will cry out, 'I know!' Would to heaven that he might honestly say to himself, 'I don't know!'"13

Couldn't one shift the blame to interest groups for spreading false information? As comfortable as this approach sounds, Mises eschews it. If the public believes whatever the interest groups tell them, they can still be faulted for failing to exercise common-sense skepticism.

The main propaganda trick of the supporters of the allegedly "progressive" policy of government control is to blame capitalism for all that is unsatisfactory in present-day conditions and to extol the blessings which socialism has in store for mankind. They have never attempted to prove their fallacious dogmas or still less to refute the objections raised by the economists. All they did was to call their adversaries names and to cast suspicion upon their motives. And, unfortunately, the average citizen cannot see through these stratagems.14

Presumably the average voter understands the general principle that name-calling is not proof. Indeed, calling your opponents names should count against you; it suggests that you have nothing better to say. If the public finds such messages persuasive, it is because they have chosen to relax ordinary intellectual standards.

It should be clear that Bastiat and Mises have a contrarian outlook on politics. It is only to be expected that the general public prefers to blame political insiders—rather than itself—for bad policies. But economists also tend to pin bad policies on special interests, and rarely put the man in the street on their list of suspects. Although the economics of Bastiat and Mises is in many ways quite "orthodox," their economics of politics is decidedly non-conformist.

All this makes for a stimulating read. But ideas have to be judged primarily by their compatibility with the observed facts, not their entertainment value. In my next column, I present surprising evidence that Bastiat and Mises are indeed on to something. Modern public opinion data on economic beliefs and policy preferences are hard for the orthodox view to handle, but are remarkably consistent with distinctive Bastiat-Mises approach.


Footnotes
1.

Bastiat, Frédéric (1964a) Selected Essays on Political Economy. Seymour Cain translator. Princeton, NJ: D. Van Nostrand, p.272. See, specifically, Chapter 9, "Academic Degrees and Socialism," par. 9.179.

2.

Bastiat, Frédéric (1964b) Economic Harmonies. W Hayden Boyers translator. Princeton, NJ: D. Van Nostrand, p.92. See, specifically, Chapter 4, "Exchange," par. 4.143.

3.

Mises, Ludwig Von (1985) Theory and History. Auburn, AL: Mises Institute, p.196.

4.

Mises, Ludwig Von (1980) Planning for Freedom. South Holland, IL: Libertarian Press, p.108.

5.

Bastiat, Frédéric (1964a). "What Is Seen and What Is Not Seen," in Bastiat, Frederic. Selected Essays on Political Economy. Seymour Cain translator. Princeton, NJ: D. Van Nostrand, pp.1-50.

6.

Bastiat, Frédéric (1964c) Economic Sophisms. Arthur Goddard translator. Irvington-on-Hudson, NY: Foundation for Economic Education, p.45. See, specifically, Series I, Chapter 5, "Our Products Are Burdened with Taxes," par. I.5.4.

7.

Bastiat (1964a), p. 272. See, specifically, Chapter 9, "Academic Degrees and Socialism," par. 9.179.

8.

Mises, Ludwig Von (1998a) Human Action. Auburn, AL: Mises Institute, p.193. See, specifically, Part II, Chapter 9, "The Role of Ideas," par. 2.IX.59.

9.

Mises, Ludwig Von (1981a [1936]) Socialism: An Economic and Sociological Analysis. J. Kahane, Translator. Indianapolis, Liberty Fund, Inc, p.462. See, specifically, Part V, Chapter 35 par. V.35.24.

10.

Mises (1998a), p.317. See, specifically, Part IV, Chapter 15, "The Market," par. 4.XV.210.

11.

Mises, Ludwig Von (1998b) Interventionism: An Economic Analysis. Irvington-on Hudson, NY: Foundation for Economic Education, p.33.

12.

Mises, (1998b), p.85.

13.

Bastiat (1964c), p.124. See, specifically, Series I, Chapter 23, "Conclusion," par. I.23.19.

14.

Mises, Ludwig Von (1969[1944]) Bureaucracy. New York, Arlington House. P. 111.


*Bryan Caplan is an Associate Professor of Economics at George Mason University. His webpage, www.bcaplan.com, features both his academic research and his numerous other interests, including the online Museum of Communism. Caplan's articles have appeared in the Economic Journal, the Journal of Law and Economics, the Journal of Public Economics,Social Science Quarterly, and numerous other outlets. He can be reached at bcaplan at gmu.edu.

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