Knowledge, Demagoguery and Democracy
Alex Robson
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A parochial belief in democracy independent of the values it promotes can be as devastating as a belief in the Ôcommon goodÕ or Ôgeneral welfareÕ.

There is no necessary connection between individual liberty and democratic rule. ÑIsaiah Berlin, Two Concepts of Liberty, p.14.

The principle of absolute popular political sovereignty asserts that government and laws are morally legitimate if and only if officials are able to convince the public they have received a Ôpopular mandateÕÑthat their actions are an expression of Ôthe will of the peopleÕ,1 however this is defined and contrived by those officials. Democracy, however, is not a system in which the majority of citizens may endorse any law or course of governmental action that they desire.2 In a true democracy, the decision of the majority does not automatically become morally right. True democracy is far more neutral in character and modest in its aims, and does not specify that the citizens are the source of all political authority: democracy is merely a set of procedures and institutions designed to allow the citizenry to participate in public affairs by removing and replacing certain public officials. Democracy does not specify, for instance, how the polity should be organised or how various branches should function. More importantly, democracy has nothing to say about the size or extent of the political power which the citizenry can delegate to government officials. Thus, democracy is not equivalent to the principle of absolute popular sovereignty.Ê

Although these basic propositions are developed throughout HayekÕs work3 and are as old as political philosophy itself, they are often either ignored, forgotten, distorted, or incorrectly interpreted as being Ôanti-democraticÕ. On the contrary, Hayek consistently recognised that democracy was an important safeguard against tyranny.4 His main point, however, was that democracy was not the only safeguard against tyranny, and that there is no value to democracy qua democracy. Democracy is desirable only to the extent that it ensures freedom in the negative sense, and an unchecked democracy is just as undesirable as unchecked totalitarian rule. Democracy can only ever be only a means to an endÑthe end being freedom5Ñand not an end itself.

That Hayek was moved to point out these facts and was (and still is) criticised for doing so is an indication of just how thoroughly demagogues have corrupted the true meaning of democracy. Not only do these demagogues hold a parochial belief in their particular brand of democracy without appreciating the values that it promotes; they hold their beliefs without recognising that these same values are also required for nearly all varieties of democracy to actually function. Part of the reason for this corruption can be blamed on a failure to realise that human knowledge can never be perfect; the failure to make a distinction between democracy as a mere set of procedures on the one hand, and as an end in itself on the other; and the constructivist-rationalist6 error that equates democracy with notions of popular sovereignty.7

Judging the value of a polity

The key to judging the value of a polity is to realise that modern human societies are not organisations: the order we observe is not a made order, or what Hayek also refers to as taxis.8 The aim of a polity is not to artificially construct a utopia. Such a made order is only possible if one or more individuals possess complete knowledge of the end desires of all individuals, the means available to them, and all other relevant facts in all conceivable particular situations (including the actions available to all individuals and the consequences of those actions). From a purely bureaucratic standpoint, there is no need for individual freedom in such a situation. As long as individuals can be confident that someone had full knowledge of all of the consequences of their particular individual actions, they can simply find out which actions produced the best results for their particular ends (or be directed by fiat), and then take those actions. Direct commands are certainly feasible, although rules may be no less desirable as a way of ÔcreatingÕ this order.

In human societies this situation of perfect knowledge of end desires is impossible, both as a matter of fact and as a matter of logic.9 The order in human societies cannot therefore be made, and is not directed towards some particular end. Instead, order is grown or spontaneousÑwhat Hayek refers to as kosmos. As Hayek and other Austrian economists emphasised, human knowledge of particular factual situations will always be limited, and thus complete rationality in any decision-making process is not possible.10 And as human societies progress and become more complex, the possibility of obtaining complete knowledgeÑif it ever existed at allÑdisappears.

This lack of knowledge need not be an obstacle. On the contrary, that knowledge of particular factual situations will always be incomplete, and that rationality is always bounded, are the keys to understanding human progress. To wit, civilisation advances when individuals use their local knowledge11 for their own ends, in ways that others cannot possibly conceive of.12 Incomplete knowledge of the particular and individual freedom are therefore inseparable: lack of knowledge is the primary reason why individuals should be permitted to pursue their own ends within their own private spheres. And, for any particular individual, freedom is not so much desirable because he can pursue his own ends; but because others can pursue their own ends, and in doing so benefit the individual in ways that he could not, but for his limited knowledge, even begin to imagine.

The Ôgeneral goodÕ therefore does notÑand cannot, as a simple matter of fact and of logicÑconsist of attempting to attain some particular final ends using some particular means for a particular individual or group of individuals; for such end desires are unknowable both in general and in the particular. Rather, the general good consists of allowing individuals to pursue their own ends within their own private spheres. This is especially true in large modern societies, where billions of economic transactions and social interactions take place every day.

How, then, does order grow in human societies? In pursuing their own ends, some individuals may interfere, in a physically coercive way, with the individual private spheres of others. Rules of conduct or general principles of behaviour might be required13 to minimise coercion and to better define the private sphere. These rules need not be devised and enforced formally, but may simply take the form of traditions or conventions. They may frequently be ÔirrationalÕ, in the sense that nobody can articulate them or explain why they exist. Individuals learn these rules long before they can articulate them in words. But if they can be expressed in words, they are structured with the general good in mind: they allow, as much as possible, individuals to pursue their own ends within their own private spheres, with a minimum of coercion.Ê On the other hand, commandsÑdirectives that are particular in their application and rely on knowledge of individual ends, means, and factual situationsÑmay certainly be issued and enforced in order to minimise coercion. But commands, by definition, can only ÔsucceedÕ when there is perfect knowledge. By their very design, commands ÔsucceedÕ by coercing some, using the arbitrary will of others, with particular ends in mind. They cannot, by construction, be instruments of freedom or focus on the general good.14

The reason that rules work where commands fail in a world of incomplete knowledge is that in the vast majority of situations, what the individual lacks in knowledge of particular factual situations he can make up for by building up knowledge of the abstract. Individuals can and do acquire knowledge of abstract, general, simple rules quite readily. Because human knowledge of the particular is limited, the distinction between general rules, and not commandsÑlaws, and not governmentÑis the key to beginning to realise the general good.15

None of these ideas are new. For example, in The Wealth of Nations, Adam Smith uses the metaphor of the ÔstatesmanÕ as the antithesis of the general good, in order to illustrate the key differences between taxis and kosmos:

Every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him.Ê The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.16

To summarise: all systems of rules are based onÑand succeed because ofÑthe realisation that humans lack knowledge of the particular. Commands, on the other hand, are based onÑand fail because ofÑthe fatal conceit that there can be perfect knowledge of the particular. Since rules and commands are only valuable to the extent that they minimise coercion, and since human knowledge can never be perfect, we must conclude that the value of any system of rules and commands will be realised by the extent to which they are structured with the kosmos in mind.

The more advanced the society, the less can be known about the particular, and the greater is the need for general rules. Thus, in complex societies rules are particularly valuable because of their generality and simplicity, and because they do not rely on particular facts about unknown individuals with unknown ends, using unknown means in unknown situations. These rules, if they are formally articulated, must focus on freedom in the negative sense: allowing an individual to pursue (but not necessarily attain) his own ends, using means of his own particular choosing, in his own private sphere, with the minimum amount of coercion by others. These conclusions apply to all situations in which a group of individuals either explicitly or implicitly agree to be bound by certain common general rules of conduct, and agree to partake in some sort of formal polity.17 They apply equally to democracy and all systems of government.

Judging the success of a polity: democracy as an example

Man is not perfectible, and neither are his institutions. Because we lack knowledge of how and why some existing general rules or traditions work (and are also completely ignorant of others), only part of the structure of the polity can even be potentially subject to human design. But the aim is not, and cannot, be some sort of utopia, and if we are to judge the success of any polity, we cannot do so on an absolute scale, but only on a relative scale. Since the value of a particular system of government is realised by the extent to which it minimises arbitrary coercion of some by others (in the most general sense) and does not rely on the perfectibility of human knowledge and human behaviour, we can judge the success of a polity by examining the extent to which it does or does not in fact do so.

In other words, we can judge a polity to be ÔbetterÕ than another, not by referring to some ill defined ends such as the Ôgeneral welfareÕ or (even worse) Ôeconomic growthÕ, but by how well it allows individuals to pursue their own ends in their private spheres, by developing and enforcing rules (as opposed to commands) with a minimum degree of coercion. By necessity, the focus of what we will call a successful system must be on freedom in the negative sense. Thus, a system which has for its chief aims the limitation or political actionÑbe it positive or negative, freedom restoring as well as freedom corruptingÑmust be more likely to succeed in attaining the general good. In many instances, this means that we will not be able to enumerate or even describe which freedoms individuals should or should not have. We can only say that the focus must be on laws or abstract rules of just conduct, rather than on government, or issuing of commands with particular ends in mind, under the pretence of perfect knowledge. OrÑto continue the metaphorÑthe fewer Smithian statesmen a polity employs, the more successful we will judge it to be.18

Have modern systems of government succeeded?

Because no modern systems of government are structured with the kosmos in mind, but instead concentrate on the taxis, it follows that no modern system of government has succeeded in preventing either the gradual or dramatic loss of freedom. This is no less true of modern democracies, which are merely sets of procedures and institutions designed to allow the citizenry to participate in public affairs by removing and replacing public officials. Other more violent means can and have been employed by the citizenry to replace public officials, but democracy is unique in its ability to accomplish these changes with the minimum amount of violence. But while democracy has enjoyed relative success in achieving this particular end, as a system of government it has not and can never be successful (using our criterion), because it does notÑas a matter of definitionÑfocus on the kosmos. In fact, by itself, democracy does not even specify whether rules or commands should be the predominant form of regulation. It merely specifies that certain public officials may retain office at the pleasure of the majority of voters, and that is all.

Some other principles must guide democracy in attempting to attain the general good. For although democracy does not specify certain rules of just conduct, it cannot, as a simple matter of logic, function without them. It is a simple matter of history that democracy has failedÑnot only in attaining the general good but also operationallyÑin countries where general rules of just conduct (including traditions and conventions) were not already in place or were inconsistent with the logical antecedents of democracy. We also have enough historical information to begin to understand why democracy failed in other situations, where rules of just conduct were already in place.19 The primary reason is that, in all cases, the institutional arrangements in modern democracies did notÑand by their construction, could notÑfocus on the majorityÕs opinion regarding rules of just conduct and the basic role of democracy as a method of peacefully replacing public officials in their role as lawmakers. Instead, arrangements in these democracies were primarily geared towards the will of the majority, and the replacement of public officials in their governing or commanding role.

The lack of focus on the kosmos may be difficult to quantify (despite the Ômeasures of freedomÕ which are now available)20 but perhaps two simple facts are enough to show what has happened. Firstly, in the last two centuries, in all polities where the will of the majority has unlimited control over governing, the size of government expenditure and revenue has grown at a faster rate than overall economic growth. This trend continues unabated.21 It is important to realise that the growth in government is not simply a transfer of political or economic power from the citizenry to government officials; the trend represents the gradual creation of new political and economic power where none previously existed. There are at least two explanations of this growth. The first is the trend towards extending the voting franchise towards citizens in the lower parts of the income distribution. In other words, the median voter has gradually become less productive and has a preference for higher levels of government transfers.22 The other explanation is that as societies become more equal, competition for transfers becomes more intense, as certain groups of voters begin to share similar interests and the costs of forming special interest groups become lower.23 There is empirical evidence for both explanations.24

The other symptoms are the nature of majority support in modern democracies, and the evolution and growth of political parties and the party machinery. That a certain public official gains majority support does not indicate that most voters are satisfied with his performance in his role as a legislator or rule-articulator. Instead, the ability to gain majority support comes from being a successful Smithian statesman.25 A successful politician must be able to implement, at the behest of various special interests, certain commands which focus on benefiting these particular groups at the expense of other groups. This is of course true in any polity, where Ôpolitical outcomes in the political ÒmarketplaceÓ for legislative goods and harms will depend on the nature and composition of the politically effective coalitions and the size and nature of the programs they achieve.Õ26 But in the demagogic form of democracy the possibilities for this are (in principle at least) unlimited, because the demagogue equates commands with laws and believes that nothing should constrain the will of the majority to create either. And, because there are increasing returns to scale in the ability to marshall support for commands, and because commands must be explained in detail to be understood, political parties and the electronic media dominate the political discourse of modern democracies.27 Proposals for changing rules of just conduct get lost in a swamp of detailed proposals for altering particular ends using particular means, all in the name of Ôsocial justiceÕ or ÔfairnessÕ. The final result is that the average citizen no longer distinguishes between laws and commands, and in fact regards it as ÔundemocraticÕ when a rule is proposed that might limit his ability to vote for commands.

None of these results follow inevitably from the principle of participatory government, although with the benefit of hindsight they appear to be a natural consequence of the particular varieties of democracy that have been implemented, and the way that the institutions of government have been designed. The ÔidealsÕ of socialism and its focus on perfect knowledge, coercive commands, particular ends, Ôsocial justiceÕ, and the political will were hardly new at the time that most modern systems of government came into existence.28 And even though unpredictable events may have played a large part in making democracy what it is today,29 the historical evidence suggests that the possibility of democracy acting as a catalyst for absolute popular sovereignty and the tyranny of the majority was not unforseeable.

These ÔexperimentsÕ in institutional design tell us quite a lot about what democracy is, and what it is not. Given the results of these experiments, it is inexcusable that democratic demagogues refuse to even acknowledge a point which is crucial for understanding any kind of reform of political institutions: democracy is an idea that cannot be implemented and function without some form of constitution of liberty. The demagogues fail to realise (perhaps intentionally so) that the current brand of democracy is in danger of destroying both freedom and itself, unless rules that constrain the will of the majority to issue commands are adopted.30

The pillars of a successful system of government

So what would a successful system of government have as its pillars? The discussion must, by necessity, be abstract and as general as possible. Along with such general principles, we will want to retain the essential spirit of democracy: participation by citizens in public affairs. The reason for doing this has little to do with political expression as such,31 because permitting participation is not the same as guaranteeing that individuals will actually wish to or will in fact participate (in many modern democracies the exact opposite often seems to be true). Our justification is the same as that which Hayek emphasised: allowing participation in public affairs and government acts as an important safeguard against the ascendancy of tyrants (although this may becoming less true as the ability of the majority to issue commands grows). Democracy has been relatively successful as a method of peacefully replacing public officials in a world of rapid social and economic change. Even if elected officials were to focus only on general rules, in a rapidly changing world these rules may need to be altered quite swiftly in response to technological advances, international immigration, or other wider changes in the notions of just conduct.

Institutions of liberty

It almost goes without saying that in a system of true participative government, individuals must have the opportunity to choose and be chosen: individuals or groups must be able to offer a genuine alternative to the incumbent. Yet it is nearly always the case that the implications of this simple observation need to be spelled out explicitly and in great detail to the demagogue, who sees no necessary connection between this observation and more fundamental principles of freedom. It is very interesting to note exactly what true participatory government implies about the flavour of political and economic institutions.

In any system of government in which the citizens wish to participate, the development of new policies, identifying and grooming new candidates, political advertising, lobbying and so on means that individuals should be able to use their own financial resources, without the government of the day directly interfering in the process by, say, deliberately halting financial transactions or by debasing the currency. Political parties must be able to form freely, and individuals and groups must be able to raise their own financial capital, on international financial markets if the need arises. They must be able to employ electoral specialists, researchers and other workers without the government of the day arbitrarily interfering in the conditions of employment. Individuals and groups must be able to propose various policies in the electronic and print media or at public forums without arbitrary interference by the incumbents. The government of the day should not be able to brainwash the youth (future voters) by arbitrarily interfering in the education system. And, in a true democracy, all rules for the conduct of elections and related events must apply equally to incumbents and the opposition. These rules should be simple and transparent, and their interpretation must be undertaken by an independent judiciary which respects its previous rulings on similar principles of law. The government of the day cannot pick and choose which electoral rules it obeys. Rules regarding the structure of the government and what it can and cannot do should be simple enough to be written down, and these rules should be difficult to change and enforced by a separate legal body.

Thus, for participative government to function properly, if at all, a system of well-defined, effectively enforced private property rights must exist.32 Markets for financial services, property, commodities and labour services must be relatively free. In particular, potential employees of the opposition must be relatively free to work for whatever wages they wish.33 In other words, there must be freedom and privity of contract.34 There should be freedom of speech and political expression, and the government may only control very limited aspects of education. Equality before the lawÑwhat Hayek called isonomyÑmust operate, and legal rules should be as simple as possible.35 The government cannot use monetary expansion to artificially inflate the price level (implying a relatively independent central bank or a system of free banking), and there must be some autonomy of the educational system. Finally, some sort of separation of the executive and the judiciary must exist (see below), and courts must respect legal precedent. A constitution spelling out the exact structure of government should be written down, should be difficult to change, and should be enforced by an independent judicial body. Again, we must emphasise that these institutions of liberty all have the same characteristics: they are based on general, widely applicable rules. They are structured with the kosmos in mind and do so in a way that minimises coercion and preserves the individualÕs private sphere. They do not rely on the perfectibility of man or human knowledge.

The fundamental role of markets

In addition to the aforementioned institutions (which the demagogue conveniently ignores), the role that markets play in making participatory government work is seriously underestimated. Since participation involves far more than just the ability to vote in elections,36 we may say that democracy implies voting, but that the converse is not true. If the logical implication is to go the other way, we need voting plus Ôsomething elseÕ.

For the results of voting to even be meaningful in any settingÑwhether it be to elect a benevolent dictator or a totalitarian tyrant, voters must actually be able to freely choose among several alternatives candidates or policy alternatives, and must also actually be given the opportunity to make such a choice. But part of the act of choosing in any setting involves identifying and assessing various options. A typical choice process consists of distinguishing among various alternatives, weighing up the expected costs and benefits of certain particular courses of action, and then selecting a single action or ranking several different actions, based on these expected consequences. A crucial part of learning about the possible consequences of choices and actions and making better choices in the future is that the individual is actually exposed to, and held accountable for, the consequences of his actions after any uncertainty resolves itself. Only if the individual is held responsible can he re-identify and reassess particular courses of action in a world of limited human knowledge of the particular.

Participation implies an ability to choose: voting versus markets

For an individual to be able to make an informed choice in the political arena or public affairs, he must be prepared to spend time and effort identifying courses of action and their consequences for himself and for his fellow citizens. Interest inÑand understanding ofÑpublic affairs is a matter of identifying and assessing political candidates, policies, and political courses of action. The individual must assess how much of certain public goods he desires, which courses of political action he favours, which candidate he favours. For the individual to do all of this effectively, he needs to know beforehand the sorts of deliberations he should go through in order to make an informed, proper assessment. The individual will not do so unless he somehow senses that he has a stake in political decision-making, and that his choices somehow matter. There must be some payoff from investing time and effort into learning about political affairs. In other words, the individual must somehow believe that his political choices have consequences that follow more or less directly from his actions.

There are, however, several serious concerns about all voting procedures which make this impossible. The concerns are most serious when political power is highly concentrated and when candidates campaign on their ability to issue commands rather than laws. Firstly, it is highly improbable that the vote of any single individual will have any real, direct consequences for that individual, particularly when a policy platform contains many commands. Certainly, the outcome matters to the individual, but the point is that the individual cannot affect the outcome. In a highly centralised democracy, there is almost no link between actions and consequences for any particular individual. Secondly, voting procedures can provide unexpected, irrational outcomesÑthese voting paradoxes occur when an election is held and the outcome is not what we think it should be. This is not caused by the preferences of the individuals in a group, but by the choice of a voting procedure which throws away valuable information.37 And since the ways in which most voting procedures actually work are not even fully understood by experts in the field, the individual has little hope of discovering how procedures can matter. In other words, voting, by itself, does not teach people how to complete the act of choosing. By itself, voting, more often than not, teaches citizens that the act of choice has no direct consequences.

Contrast these facts with the behaviour of the individual in smaller groups such as the family, or in larger institutions such as modern markets. When an individual participates in the market mechanism (either as a buyer or as a seller), the consequences of his decisions and actions are usually swift and direct. If a consumer identifies an arbitrage opportunity, or a producer invents a new, valuable product, the consequences are fairly apparent as soon as any transaction takes place. In the absence of direct government intervention in the price mechanism, price signals transmit information quickly and accurately among individuals.

The existence of meaningful tradeoffs is the essence of choice. Markets teach individuals about the true meaning of tradeoffs: if the individual chooses one thing, his wealth constraint limits his choices elsewhere. Markets therefore teach citizens about opportunity costs, and about the consequences of true compromise and self restraint. Markets also have other virtues: in competitive markets, individuals learn that they cannot directly manipulate prices or quantities for their own ends. Markets teach that patience can be beneficial if market conditions are right; and they punish individuals for making incorrect decisions. Most importantly, they teach individuals about how well-defined, enforced private property rights allow mutually beneficial gains from exchange to emerge: they teach individuals that the world is a positive sum game. An individual who grew up knowing only about markets would be well prepared to actually make a choice among political alternatives, and an individual knowing only voting would not know how to choose anything.

The natural outcome of all of this is that the individual in a non-market democracy learns that there may often be no immediate consequences if ÔbadÕ choices are made. In a non-market democracy, consequences are decoupled from choices, and individuals cannot learn how to chooseÑand so they do not.38Ê Markets are essential for participatory government to function.

Federalism and the Hayekian separation of powers: nomos vs thesis

The negative effect that centralised democracy has on the citizenÕs interest in public affairs, and the tendency to focus on commands rather than rules of just conduct can be largely negated and overcome with the introduction of two other institutional features. In modern societies there will be always be a need for the government to issue commands, if only for the sole reason that they must do so for the purposes of national defence or the actual functioning of various government agencies whose role is to enforce rules of just conduct. One of the keys to encouraging citizens to participate meaningfully in the choice of who issues commands and the choice of lawmakers is political decentralisation.

One example of decentralisation of rule-making is the system of common law: judges clarify rules which the parties to a dispute already expected would be in place, and the articulation of the rule is meant to be binding in all similar situations, even though these future situations do not involve particular persons with particular ends. For an example of how decentralisation of commands actually works in practice, consider the following fact: the Unites States has more ÔdemocracyÕ than any other industrialised country, and yet contrary to popular belief its citizens are among the most politically astute in the world. In other words, in the United States, democracy is carried out much further than in Europe: there are approximately 500,000 directly elected offices in the United States. But because most of these offices exist at the local, municipal level, citizens often feel they have a Ôreal sayÕ in decisions regarding commands that will directly affect them. As a result, the citizenry get a feel for how commands work, which commands work best, and are wary of large radical (predominantly socialist) ideas that would centralise power and undermine their control over which commands can and cannot be issued. Thus, the politics of commands remains very practical and not ideological,39 and political alienation is minimised.

The final and most critical feature of a successful system of government (under our criterion) is one that Hayek emphasised heavily throughout Law, Legislation and Liberty. HayekÕs insightÑthat human societies are kosmos and not taxisÑsuggests that, even at the local level, there should be a separation between the body that can articulate laws or rules of just conduct,40 and the body that can issue and enforce commands. Once again, this can be largely be accomplished by establishing a common law system that is separated from the governing body that issues commands, and by ensuring (perhaps by constitutional decree) that ill defined, knowledge specific ends such as Ôthe public interestÕ or Ôsocial justiceÕ do not enter into common law decisions. However, if the common law needs to be altered (because of errors or if concepts of just conduct change and become inconsistent with the common law), then a body of officials (which Hayek called the nomothetae) may be established for this purpose.41Ê The establishment of such a body would also go a long way towards minimising the kinds of disputes we often observe regarding the constitutional validity of various commands by government. In keeping with the democratic spirit of participation in public affairs, these officials could still be elected, but in their role as articulators of general rules they would have an entirely different function fromÑand would in fact constrainÑthe modern Smithian statesman. This other arm of government would still exist and be elected democratically, and would operate just as modern governments do: they would still issue commands, but the validity of commands would be subject to the rulings of the nomothetae.

Conclusion

These are the minimal requirements if such a system of participative government is to be successful in attaining the general good: Free markets must operate so that individuals actually learn and refine their abilities to choose among abstract alternatives;42 private property rights and the rule of law must exist so that markets work as vehicle for both economic and political freedom, and so that laws cannot be arbitrarily applied to meet the particular ends of government officials; the bodies that articulate laws and issue commands should be separated from each other, and decentralised as much as possible; if decentralisation can be achieved by means of a system of common law, then the judiciary should be independent of either branch of government; and the ability to issue commands should be bound by general rules.

These same institutions are the very ones that require us to employ fewer Smithian statesmen. The key difference between these institutions and the institutions of modern democracy is that institutions of liberty focus explicitly on constraining the Smithian statesman, whereas modern democracy places too few constraints on the ability of officials to issue end-specific commands, at the expense of these general rules. For any system of government to allow citizens to participate meaningfully in public affairs and which also focuses on the kosmos, the principles remain the same. The common thread is the link between human knowledge, nomos, and the minimisation of coercion. Private property rights protect the individualÕs private sphere, and require a minimal amount of coercion to regulate, since in nearly all modern economies they operate as a convention rather than by command. The rule of law is, by definition, a principle which rules out focusing on particular end situations of individuals, and instead focuses on the true notion of justice: treating all individuals equally before the law. Freedom and privity of contract simply mean that courts cannot substitute their own ends (or the ends of politicians) for the ends of the parties to the contract, and privity of contract means that the unknown ends of third parties cannot be substituted either (ruling out the interference by unions in most labour relations). The explicit role of the nomothetae would be to constrain governing, as opposed to rulemaking.

These are all features of a system of government which would be structured with the general good in mind. Since human institutions are not perfectible, they would not succeed in attaining the general good. But by focusing on rules rather than commands, the system relies as little as possible on the pretence of perfect human knowledge. That the pillars of a free society do not rely on this pretence is no accident. The institutions of private property rights, free markets, the rule of law, freedom and privity of contract, the common law system and so on, evolved, survived, were imitated and exploited by men precisely because human knowledge is notÑand can never beÑperfect, and because they worked. The demagogic form of democracy is in danger of undermining these institutions and demolishing freedom unless democracies are reformed so as to constrain the Smithian statesman.

Dr Alex Robson is a Lecturer in the School of Economics, The Australian National University. This essay won first prize in the prestigious Mont Pelerin SocietyÕs 2002 Hayek Essay competition. The extensive endnotes and references may be accessed at www.cis.org.au

Endnotes

[1] Note the close similarity of this concept to what Von Mises called "the essential mark of socialism: that one will alone acts, irrespective of whose will it is". See Human Action, p 695.

[2] See, for example, Aristotle's Politics: "A government that centers all power in the votes of people cannot, properly speaking, be a democracy: for their decrees cannot be general in their extent."

[3] See, for example, The Road to Serfdom, Chapter 5; The Constitution of Liberty, Chapter 7, and Law, Legislation and Liberty, Volume 3.

[4] See, for example, Law, Legislation and Liberty, Volume 3, page 5, page 39, and page 98.

[5] We will use Hayek's definition of freedom throughout this essay. See for example Chapter 1, page 11 of The Constitution of Liberty: a state of freedom exists when coercion of some by the arbitrary will of others is reduced by as much as possible.

[6] This terminology is used by Hayek in Law Legislation and Liberty, Volume I, page 9.

[7] This error is perpetuated throughout the modern electronic and print media, by modern socialists, and by advocates of "the Third Way". Professional political scientists also exhibit a similar desire to equate democracy with other values. For example, see Riker (1982), chapter 1: "Democracy is an ideal of both justice and political life, and it is a method of realizing that ideal in ordinary politics. The ideal is self realization (that is, the achievement of the human potential for good qualities of character and behaviour) and individual self-respect (that is, a sense of one's worthiness as a person and a pride in one's self-realization). The method is, for each person, free and equal participation in the political life of the community, engaging thus in whatever control of the social environment is possible. What makes democracy unique is that the democratic means and the democratic ends are joined." [emphasis added] "Indeed, they are the same things viewed ideally and instrumentally. According to democratic theory, democratic ends can be achieved by democratic means. Now, of course, that assertion may or may not be true. If it is not true, if the method cannot realize the ideal, however lofty the ideal may be, the notion of democracy is meaningless." For further discussion of this issue, see Hayek (1956).

[8] See Hayek, Law Legislation and Liberty, Volume I, p 37.

[9] The factual impossibility of perfect knowledge of end desires is obvious. The logical impossibility follows by imagining the following situation: suppose that a "benevolent central planner" possessed complete knowledge of the desires of all individuals, and suppose that one individual has the following desire: "I do not wish anyone to know my desires". The planner could not, as a matter of logic, fulfil this person's wishes. This kind of logical impossibility also pervades the discipline of "welfare economics", and in particular the notion of the existence of a "social welfare function". For further details, see Landsburg (2001).

[10] Note that in no way does this negate the assumption of economic theory that economic agents act "as if" they are fully rational.

[11] Here we mean knowledge in its broadest sense. Conscious, explicit knowledge possessed by individuals is only a small part of this. See Hayek, The Constitution of Liberty, page 25.

[12] Note that this does not mean that individuals will always (if ever) pursue their ends "efficiently" or without error; humanity progresses by allowing individuals to make these errors, so that others might learn from them.

[13] We do not mean to imply anywhere in this section that rules can be "structured" separately from society, or that they either logically or factually antecedent to human societies.

[14] Thus, commands are the primary tool of the Smithian statesman (see below).

[15] Note that the "general good" can never, in fact, be realized by any system of government. Man is not perfectible, and neither are his institutions.

[16] This quote is used also used by Hayek in Chapter 5 of The Road to Serfdom. It is part of a discussion by Smith on international trade, and is taken from Book IV, Chapter 2: "Of Restraints upon the Importation from Foreign Countries of such Goods as can be produced at Home".

[17] Again, we must emphasize that these general rules will not predate the agreement of individuals to be bound by them. They arise from a process of adaptation. Some of them may be articulated in the formal documents of the polity, but many will be difficult to articulate.

[18] Note that this does not necessarily imply (although leaves open the possibility for) a "minimal state" in the spirit of Nozick (1974) or Humboldt (1993).

[19] For example, at 215 years, the Constitution of the United States is not only older than the French, German, Italian, Belgian, Spanish and Greek constitutions it is older than all of them put together.

[20] See, for example, The Heritage Foundation (2001).

[21] The hypothesis, also known as Wagner's law, is that the there is a tendency for the public sector to expand at a greater rate that the private sector as economic progress takes place. The empirical evidence of the law is somewhat mixed. For example, Wagner and Weber (1977) and Koop and Poirier (1995) find that the law does not hold consistently throughout the world, although the evidence is stronger for Western democracies. Although this growth of government is a somewhat imperfect indicator of what has occurred, it is nevertheless very instructive. It is probably more correct to say that the growth of government in democracies is both a symptom and a cause of the disease of which we are speaking. Other analyses of this issue include Borcheding (1977) and Holsey and Borcheding (1997).

[22] See, for example, Meltzer and Richard (1978, 1981)

[23] For empirical evidence, see Peltzman (1980). The effect was noticed by De Tocqueville (Volume II, p 295): "The hatred that men bear to privilege increases in proportion as privileges become fewer and less considerable, so that democratic passions would seem to burn most fiercely just when they have least fuelÉ. When all conditions are unequal, no inequality is so great as to offend the eye, whereas the slightest dissimilarity is odious in the midst of general uniformity; the more complete this uniformity is the more insupportable the sight of such difference becomes. Hence it is natural that the love of equality should constantly increase together with equality itself, and that it should grow by what it feeds onÉ Every central power, which follows its natural tendencies, courts and encourages the principle of equality; for equality singularly facilitates, extends, and secures the influence of central power."

[24] Increases in the size and extent of rent seeking behavior are another typical symptom of this growth in government. See, for example, Lott (1998). On recent estimates of the costs of rent seeking, see Laband and McClintock (2001). An increase in the number of lawyers is another indicator. See Magee et al. (1989), Magee (1992), and Cross (1992). Finally, growth in the size of bureaucracies is also a symptom of the growing tendency of governments to issue commands. See Niskanen (1994).

[25] Competition among interest groups for political favors was first formally modeled by Becker (1983,1985). For further discussion, see Mueller (1989).

[26] Stigler (1988) pages x-xi.

[27] A classic early text on the role of the media in democracy is Lippman (1922). A modern treatment relating to Presidential politics is Jamieson (1996).

[28] See, for example, the history of the Roman Empire after the second century A.D. In The Constitution of Liberty (page 167) Hayek explains how state socialism advanced rapidly during this period and afterwards.

[29] See, for example, Hayek's discussion of the US Constitution in The Constitution of Liberty, Chapter 12.

[30] This observation does not rely on whether one believes that "government failure" is a pervasive feature of the political marketplace. Indeed, some public choice scholars have denied that economic markets are more efficient that the processes and institutions of democracy. See, for example Wittman (1995).

[31] I am referring here to a feature of democracy that permits what Fukuyama (1992) calls recognition, and what Brennan and Lomasky (1993) refer to as expressive voting.

[32] We are assuming here that the reader understands that private property rights have a separate and more fundamental role of protecting freedom irrespective of the system of government, by constraining the power of the state. Although this has been known for centuries, the recent treatment of Pipes (1999) is very enlightening. For economic discussions of property rights, see Alchian (1965) and Demsetz (1967).

[33] The incumbent government should not be able to artificially force wages so high as to price the opposition out of the market for lobbyists and political advertising.

[34] This means that courts should enforce bargains which parties expect to be enforced, either because of convention or because simple, general rules governing contracts have been articulated by earlier common law.

[35] In a complex society, both commands and general rules of conduct should be as simple as possible. As complexity increases, simplicity of rules and commands should also increase. The reason, again, is lack of human knowledge about the particular, and the high costs of discovering what complex rules actually mean and then complying with them. For a complete discussion, see Epstein (1995).

[36] Voting also occurs within many private organizations that could not properly be regarded as democratic, and is also used at sporting events to judge athletic and artistic performance. Very recently, voting in "elections" has also occurred in some Middle Eastern countries (for example the "elections" held in recent years by the Palestinian Authority, by the Hussein regime in Iraq, and most recently by the Musharraf regime in Pakistan) but these could not be properly regarded (even by demagogues) as "democratic".

[37] Some procedures are more flawed than others, but, as Kenneth Arrow has shown, there is no voting procedure that is "best". There are several interpretations of Arrow's result. Individuals can take rational actions but the actions of the group can be irrational. Or, individual preferences cannot be meaningfully aggregated, unless we are willing to accept procedures that are flawed in some way. See Arrow (1963). Another concern is that not only are all procedures flawed in some way or another, but outcomes can vary wildly and unpredictably with small changes in the procedure. See Saari (1995, 2001a, 2001b) and Riker (1982). On the other hand, in small groups an individual with enough information can manipulate his vote or the procedure to get his most desired result. Although price or quantity manipulation can also happen in markets with small numbers of participants, the way in which manipulation occurs is usually far more obvious in markets than in voting situations.

[38] Thus, the great paradox of a centralized, non-market democracy (which is really not a paradox at all) is that it turns citizens into simpletons. Contrast this with Hayek's position in Constitution of Liberty, p108: "The third argument [for democracy], rests on the effect which the existence of democratic institutions will have on the general level of understanding of public affairs. This seems to me the most powerful".

[39] I am grateful to Dr Marc Poitras of the University of Dayton for pointing this out to me. In a private correspondence, Poitras has noted that radical and ideological candidates have had remarkably little success in U.S. elections: pure socialist candidates such as LaFollette and Debs never received more than about 2% of the vote in Presidential elections, and Communists and National Socialists do not show up on the political radar screen. In contrast, consider recent events in France: in the first round of the just concluded presidential election in France, 18% of the vote went to Le Pen a National Socialist. The "pure" Communists and two Trotskyites offered other various flavors of communism and socialism.

[40] We are again following Hayek's lead here: the constructivist-rationalist, legal positivist way of thinking about true laws (as opposed to commands) is completely inappropriate, since rules of just conduct are accepted and obeyed by the majority of citizens long before they can be articulated by a politician.

[41] An alternative possibility would be to place constitutional limits on the size of government spending and taxation. Ultimately, such a constraint would probably be unsuccessful, because the modern Smithian statesmen has become an expert at constantly redefining what does and does not constitute taxation and spending. Thus he would in time find ways to circumvent and subvert such a constitutional provision. This has already occurred, for example, in New Zealand, where the central bank agreed to keep inflation within a certain range. The result was that central bank officials simply continually redefined the relevant measure of inflation. Of course, the possibility of this sort of thing occurring would not be eliminated with the introduction of the nomothetae.

[42] We are assuming here that the reader understands the more important and fundamental roles that markets play in promoting economic freedom. First, markets solve the resource allocation problem: they shift finite resources away from individuals who place a low value on them, to individuals who place a higher value on them, in a voluntary, mutually beneficial fashion, without resources being needlessly wasted. While there is no guarantee that these market allocations will eliminate the jealousy and envy of certain individuals - also known among socialists as "social justice", "equity" or "fairness " but in a complex world where billions of economic decisions are made every day, the ability of markets to solve the vast majority of resource allocation problems is unquestioned: there are no simply no other mechanisms known to humans that can perform this function at all, let alone as successfully as markets actually do. Secondly, prices in competitive markets act as signals to tell individual producers and consumers how they should act in the future, even though these individuals do not know (or care) why prices are changing. See Hayek (1945).

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