Front Page Titles (by Subject) 1: The Slogan Economic Democracy - Socialism: An Economic and Sociological Analysis
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1: The Slogan “Economic Democracy” - Ludwig von Mises, Socialism: An Economic and Sociological Analysis 
Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
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The Slogan “Economic Democracy”
One of the more important arguments in favor of Socialism is that contained in the slogan “self-government by industry.” As in the political sphere the King’s absolutism was broken by the peoples’ right to share decisions and later by its sole right to decide, so the absolutism of owners of the means of production and of entrepreneurs is to be abolished by consumers and workers. Democracy is incomplete as long as everyone is obliged to submit to the dictatorship of the owners. The worst part of Capitalism is by no means inequality of income; more unbearable still is the power which it gives the capitalists over their fellow citizens. As long as this state of affairs continues there can be no personal freedom. The People must take the administration of economic matters into their own hands, just as they have taken over the government of the state.57
There is a double error in this argument. It misconceives on the one hand, the nature and function of political democracy, and on the other, the nature of the social order based on private ownership in the means of production.
We have already shown that the essence of democracy is to be found neither in the electoral system, nor in the discussions and resolutions of national councils, nor in any sort of committee appointed by these councils. These are merely the technical tools of political democracy. Its real function is to make peace. Democratic institutions make the will of the people effective in political matters, by ensuring that its rulers and administrators are elected by the people’s votes. Thus are eliminated those dangers to peaceful social development which might result from any clash between the will of the rulers and public opinion. Civil war is averted through the operation of institutions which facilitate a peaceful change of the government. In the economic order based on private ownership in the means of production no special institutions, such as political democracy has created for itself, are needed to achieve corresponding success. Free competition does all that is needed. All production must bend to the consumers’ will. From the moment it fails to conform to the consumers’ demands it becomes unprofitable. Thus free competition compels the obedience of the producer to the consumer’s will and also, in case of need, the transfer of the means of production from the hands of those unwilling or unable to achieve what the consumer demands in to the hands of those better able to direct production. The lord of production is the consumer. From this point of view the capitalist society is a democracy in which every penny represents a ballot paper. It is a democracy with an imperative and immediately revocable mandate to its deputies.58
It is a consumers’ democracy. By themselves the producers, as such, are quite unable to order the direction of production. This is as true of the entrepreneur as of the worker; both must bow ultimately to the consumers’ wishes. And it could not well be otherwise. People produce, not for the sake of production, but for the goods that may be consumed. As producer in an economy based on the division of labour, a man is merely the agent of the community and as such has to obey. Only as a consumer can he command.
The entrepreneur is thus no more than an overseer of production. He of course exercises power over the worker. But he cannot exercise it arbitrarily. He must use it in accordance with the requirements of that productive activity which corresponds to the consumers’ wishes. To the individual wage-earner whose outlook is enclosed by the narrow horizon of daily work, the entrepreneur’s decisions may seem arbitrary and capricious. Seen from too close up the shape of things lose their true significance. If the entrepreneur’s disposal of production injures the worker’s momentary interest, it is sure to seem to him unfounded and arbitrary. He will not realize that the entrepreneur works under the rule of a strict law. True, the entrepreneur is free to give full rein to his whims, to dismiss workers off hand, to cling stubbornly to antiquated processes, deliberately to choose unsuitable methods of production and to allow himself to be guided by motives which conflict with the demands of consumers. But when and in so far as he does this he must pay for it, and if he does not restrain himself in time he will be driven, by the loss of his property, into a position where he can inflict no further damage. Special means of controlling his behavior are unnecessary. The market controls him more strictly and exactingly than could any government or other organ of society.59
Every attempt to replace this rule of the consumers by a rule of producers is absurd. It would run contrary to the very nature of the productive process. We have already treated an example of this in greater detail—the example most important for modern conditions—the example of the syndicalist economy. What is true of it, is true of any producers’ policy. All economy must be a consumers’ economy. The absurdity of these endeavours to institute “economic democracy” by the creation of syndicalist institutions becomes apparent if we imagine these institutions transferred to the political field. For example, would it be democracy if judges had to decide what laws should be in force and how they should be administered? Or if soldiers had to decide at whose disposal they would place their arms and how to use them? No, judges and solders have to conform to law if the state is not to become an arbitrary despotism. The catchword “industrial self-government” is the most blatant of all misconceptions of the nature of democracy.
In the socialist community, too, it is not the workers in separate branches of production who decide what is to be done in their own particular economic territory, but the supreme authority of society. If this were not so, we should have not Socialism but Syndicalism, and between these two there is no possible compromise.
[57. ]“The central wrong of the Capitalist system is neither the poverty of the poor nor the riches of the rich: it is the power which the mere ownership of the instruments of production gives to a relatively small section of the community over the actions of their fellow-citizens and over the mental and physical environment of successive generations. Under such a system personal freedom becomes, for large masses of the people, little better than a mockery.... What the Socialist aims at is the substitution, for this Dictatorship of the Capitalist, of govermnet of the people by the people and for the people, in all the industries and services by which the people live.” Sidney and Beatrice Webb, A Constitution for the Socialist Commonwealth of Great Britain (London, 1920), pp. xiii ff. See also Cole, Guild Socialism Re-stated (London, 1920), pp. 12 ff.
[58. ]“The market is a democracy where every penny gives a right to vote.” Fetter, The Principles of Economics, pp. 394, 410. See also Schumpeter, Theorie der wirtschaftlichen Entwicklung (Leipzig, 1912), pp. 32 ff. Nothing is more topsy-turvy than a saying such as: “Who is less questioned at the building of a house in a large city than its future tenants?” Lenz, Macht unt Wirtshaft (Munich, 1915), p. 32. Every buider tries to build in a way that best suits the wishes of the future tenants, so that he may be able to let the buildings as quickly and profitably as possible. See also the striking remarks in Withers, The Case for Capitalism (London, 1920), pp. 41 ff.
[59. ]People overlook this entirely when, like the Webbs, A Constitution for the Socialist Commonwealth of Great Britain, p. xii, they say that the workers have to obey the orders “of irresponsible masters intent on their own pleasure or their own gain.”