David Ellerman — Does Classical Liberalism Imply Democracy?

There is a fault line running through classical liberalism as to whether or not democratic self-governance is a necessary part of a liberal social order. The democratic and non-democratic strains of classical liberalism are both present today—particularly in America. Many contemporary libertarians and neo-Austrian economists represent the non-democratic strain. We will take the late James M. Buchanan as a representative of democratic classical liberalism (with assists from the earlier democratic classical liberal philosophers, John Stuart Mill and John Dewey). Unpacking the implications of classical liberalism for any socio-organizational structures requires a tour through the intellectual history of the voluntary slavery contract and the voluntary non-democratic constitution (or pactum subjectionis) and it requires the recovery of the theory of inalienable rights that descends from the Reformation doctrine of the inalienability of conscience through the Enlightenment in the abolitionist and democratic movements. The argument concludes in agreement with Buchanan that the classical liberal endorsement of sovereign individuals acting in the marketplace generalizes to the joint action of individuals as the principals in their own organizations.…

Contains an excellent summary of classical liberalism. Here is the conclusion.

Re-constitutionalizing the corporation

Today the structure of most companies of any size—namely, the employment relation with the "employer" being the corporation with absentee "owners" on the stock market— institutionalizes irresponsibility by disconnecting the far-flung shareholders from the social and environmental impact of their "corporate governance."21

There have been a few social commentators who have pointed out the institutionalized irresponsibility of the absentee-owned joint stock corporation. In his 1961 book aptly entitled The Responsible Company, George Goyder quoted a striking passage from Lord Eustace Percy's Riddell Lectures in 1944:

Here is the most urgent challenge to political invention ever offered to the jurist and the statesman. The human association which in fact produces and distributes wealth, the association of workmen, managers, technicians and directors, is not an association recognised by the law. The association which the law does recognise—the association of shareholders, creditors and directors—is incapable of production and is not expected by the law to perform these functions. [Percy 1944, 38; quoted in Goyder 1961, 57]

This modest proposal re-constitutionalizes the corporation so that the "human association which in fact produces and distributes wealth" is recognized in law as the legal corporation where the ownership/membership in the company would be assigned to the "workmen, managers, technicians and directors" who work in the company. If the modest proposal were accepted that the contract for the renting of human beings be recognized as invalid and be abolished, then production could only be organized on the basis of the people working in production (jointly) hiring or already owning the capital and other inputs they use in production. The legal members of the firm as a legal party would be the people working in the firm. Such a firm is a democratic firm and the private property market economy of such firms is an economic democracy.22

Conclusion

When firms are organized as workplace democracies, then that is the natural generalization of sovereign individuals acting in the marketplace so ably described in the classical liberal free- market vision—to associated individuals acting as the principals only delegating decision- making authority in their own organizations.

I would call this a must-read for those interested in the intersection of economics, political science and philosophy. This is becoming a defining issue of our times.

Does Classical Liberalism Imply Democracy?
David Ellerman

David P. Ellerman (PhD in Mathematics) is a philosopher and author who works in the fields of economics and political economy, social theory and philosophy, and in mathematics. He has written extensively on workplace democracy based on a modern treatment of the labor theory of property and the theory of inalienable rights as rights based on de facto inalienable capacities. (Wikipedia)