The Hayekian Case for Direct Democracy

Alan G. Futerman1

Abstract: Representative democracy and democracy are often presented as synonyms.

However, this claim omits the fact that there is another type of democracy able to provide a
much more efficient mechanism for political organization of society: direct democracy. As a
system that allows the citizens to vote for or against political initiatives by themselves, it gives
a more suitable approach towards political processes in accordance with society's nature. Since
society is a complex system and, borrowing Hayek's concept, a spontaneous order, direct
democracy provides the system with the possibility of being ruled bottom-up, rather than top-
down. As such, society evolves through the application of policies furthered by the citizens
under a process of trial and error. This, in turn guarantee stability and progress (of which
Switzerland is a case in point), rather than the systemic risk associated with top-down
intervention of the kind promoted by representative democracy.

“The maxim of indirect or representative

democracy is, ‘Write your congressman.’ The maxim of
direct or populist democracy is, ‘vote yes (or no)’. ”
Fossedal (2002b, 260)

I. Introduction

The branch of philosophy that studies the nature and organization of social systems is Politics.
The common view in the West is that democracy is the system of government that is to be
understood as the proper form of political organization. However, the idea that democracy is
the best system does not necessarily imply that there is only one way of understanding or
applying it.

Thus, for the most part, western citizens understand democracy as representative democracy.
Direct democracy is almost completely ignored or rejected by both political elites and theorists.
Aided by concepts developed by Friedrich A. Von Hayek, we will analyze in this work why

1
Independent scholar, Rosario, Argentina. [email protected]
1
direct democracy is a much better approach towards democracy as such; and a form of political
organization closer to both human and society’s nature.

II. The Pitfalls of Representative Democracy

The government is not a concrete living entity, but a specific institution run by individuals.
Thus, as individuals, these act in accordance to their own incentives and interests. Therefore,
when the government acts, it is individuals who compose it who act.

The idea that underlies representative democracy is that the citizens govern through their
elected representatives. However, the problem with this approach is that, although one may
conceive that the primary interest of an elected official is to pursue its electors interests, this is
not necessarily the case. As such, politicians’ interests may not only be different to those of the
citizens, but also opposed.

Public Choice School (Shughart II, 2008), as developed primarily by James Buchanan (1964;
1975) and Gordon Tullock (1993), teaches that democracy by itself is no guarantee to prevent
the government from damaging the economy or of promoting citizens’ interests. The focus is
set on “Government Failures”, rather than “Market Failures”. In the light of this school of
thought, let us analyze some of the reasons to show why this is the case.

The primary objective of a politician is not to promote any specific political agenda, but first
to become elected. In order to achieve this outcome, they need to finance their campaigns, and
since they have to compete, they need as much financial help as they can get. Because of this,
an alliance is often created between lobbies and politicians, where the former commit to
providing financial assistance to the latter, in exchange of getting political privileges. These
may include subsidies, tax exemptions and franchises, among others. Although one can point
to certain politicians as free of this perverse dynamics, the system itself promotes it by means
of the incentives inherent in the competition for political office2.

As a result, politicians work in order to benefit certain economic sectors, and to harm others
through regulations, taxes, and other state interventions. Ultimately, these policies prevent
citizens from attaining their ends through peaceful and voluntary cooperation, and harm
especially those with less expertise, since these tend to have neither the knowledge nor the
tools to overcome regulations and interventions of different kinds. Moreover, they may even

2
By using economic analysis, we can say that lobbies will have an incentive to finance those politicians that will
benefit them if the present discounted value of the benefits they will receive is above the cost of financing the
campaign.
2
be deceived to believe, through political discourse, that the policies, which harm them, are in
fact established in their benefit.

Nevertheless, the elective process as such is problematic, since there are thousands and even
millions of individual voters, and therefore individuals tend to think that their vote is irrelevant
because it is in effect marginal to the outcome of the election. This implies that, in general, the
voter will give little to no attention to the political agendas of different politicians. This is so
because the time and costs associated with gaining a deep and thorough understanding of the
consequences of such policies are well below the benefits of dealing with every day affairs.
Moreover, even if long (or, even short) term every citizen is affected by public policies, the
marginal nature of the vote seems irrelevant in the light of fulfilling direct, daily,
responsibilities. Thus, the opportunity cost of studying the relevant data to vote properly,
according to the interests of free citizens in a free society, may be perceived as too big.

As such, politicians often take advantage of public indifference and ignorance with regard to
policies and their implications and tend to make political campaigns almost exclusively focused
on emotion and slogans3 rather than sensible arguments and reason. Further, the indifference
of voters towards the elections is enhanced by the voluntary nature of the elective process,
which although it is a proper feature of a free society, it is nevertheless a factor against citizens’
involvement in choosing4.

Another problem is that voting often involves not just voting for a candidate, but to a full list.
In this context, the citizen may not even know nor have heard of most of those candidates in
the list. As such, the system makes it even more difficult for the citizen to choose his
representatives according to his own criteria.

In the free market, each individual is able to pursue his own interests by choosing to buy or not
specific products. Therefore, the consumer is constantly voting with every purchase. In
elections, citizens must wait for specific schedules in order to express their desire. Moreover,
lobbies are a logical consequence of representative democracy, since there is no other way of
attaining the wishes of those who want change fast5 but to push for policies in that direction
through pressing politicians or, in some cases, to resort directly to bribery. Corruption is a
logical consequence of this system.

3
This may imply direct promises (“the state will fix it”) and/or also attacking certain sectors of the economy, such
as the financial system, in order to gain popularity from attacking unpopular sectors. Paternalistic discourse is also
often used.
4
Although this may change in places where voting is mandatory
5
Since electoral calendars are slow and every general election may be in time spans of two, four or even six
years.
3
Finally, because of the system of representative democracy, disorganized and large majorities
are subject to the power of small, organized minorities that have political influence and power.
In this context, it is obvious that payment of taxes and the services provided by the government
are not nor need to be related to citizens’ interests.

As we have tried to show, representative democracy in practice is far from the ideal that it is
supposed to be in theory6. Despite of this, democracy is the best system yet known for people
to choose the authorities of the government. However, democracy as such is not nor need to be
strictly limited to choosing representatives, since it may very well involve voting on policies
themselves. This is called direct democracy.

III. Cosmos and Taxis

Society is a system of voluntary and peaceful cooperation of individuals. As s system, it has a

definite order. In this context, order means an arrangement of things by a specific standard.
The absence of a standard implies that there is no logic behind the arrangement, and thus chaos
emerge. This, of course, does not imply that any standard is the same nor has the same
consequences, but that a standard is necessary in order to distinguish order from chaos. In the
context of society, democracy is one kind of order.

Friedrich Hayek (1982) identified two different types of possible orders: created (Taxis) and
spontaneous (Cosmos). Created orders are designed by one or more agents, who are exogenous
to it. As such, however its arrangement, it is simple in the sense it can be understood by a
human mind, i.e. precisely because it has been created by a human mind, it can also be
understood by it. Thus, it can be both regulated and controlled.

On the other hand, spontaneous orders are not the outcome of any specific individual design,
but of a process of which they appear as an emergent creation of their parts without any
conscious intention. Thus, the agents are endogenous to the system. Consequently, it is not
simple (but complex) and in order to identify its nature one has no other choice but to study
only certain parts as a means of getting an understanding of the whole.

Behavior patterns, which turned into regularities by which the system emerged, are the key to
its self-regulation. As such, trying to turn a spontaneous order into a created order is futile,
since it is in the nature of the system that it will function according to the rules that gave rise
to it in the first place. Moreover, although it is a fully integrated system, which emerged from

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Moreover, democracy outside of the context of a republic may only be another road to dictatorship.
Constitutional controls and other “checks and balances” are necessarily to be implemented in order to prevent
democracy from turning into the absolute power of the majority and the subjection of the minority to arbitrary
whims by those who exercise power.
4
its constituent parts, it is nevertheless not equal to them. And even if one part could be
controlled, any intervention implies that unintended consequences are to be expected.

Society, as a spontaneous order, functions and is coordinated by the knowledge of its members
(individuals). This knowledge is transmitted and expanded through voluntary cooperation
under different institutions, also of spontaneous origin. Such institutions, like morality, law,
language, and money, allow increasing cooperation, exchanges and therefore progress; in turn
expanding the complexity of the social order. Although every event in the system is the
consequence of human action and reason, its institutions as well as the system as such are not
the result of human design.

Thus, every intervention in human society with the intention of establishing a created order is
doomed to failure, since it is impossible to avoid “unintended consequences” in a system that
self-regulates. Given that the planner lacks the relevant knowledge of how the system fully
operates nor can have such knowledge (since human action changes the configuration of the
system uninterruptedly), there is no way to determine a definite causal link between
intervention and its consequences of the form p → q. This is so not only because q is unknown,
but also because it is unknowable by the nature of the system.

This is the reason why government’s intervention in the economy generates lack of
coordination, resource misallocation, and finally poverty7. Hayek identifies that the primary
form of coordination in the economy is under the price system, which allows people to transmit
information (knowledge) of their value judgments through concrete signs (prices), and
therefore to guide production and resource allocation. The price system is a spontaneous order
that cannot be centrally planned, because the information does not even exist at the time of
planning; but it appears precisely when individuals transmit such information by their actions
through exchange (commerce). In turn, the results of entrepreneurial activity (both profit and
loss) show if such allocations of resources have been fruitful in satisfying consumer’s demands
or not (Mises, 1922). Moreover, a free society evolves as a process of trial and error, where
errors are limited and not systemic as in the case of central planning (Hayek, 1933; 1988).

The degree of intervention is therefore the degree of discoordination that it will create (Mises,
1949). Statism, therefore, entails a lack of understanding of the social phenomena. It is based
on the idea of controlling what by nature cannot be controlled. Since planners have no clue
about how to plan, “pragmatism” and the focus on the short run are the definite guidelines to
action. Appealing to emotion through political discourse, rather than reason, creates the

7
For literature on institutions and society’s organization, see Coase (1960), Demsetz (1967), Olson (1965) Ostrom
(1990).
5
atmosphere for immorality (due to the absence of strict principles, since these are rejected for
“not being pragmatic”) and finally widespread compromise.

Finally, this leads to the idea that the end justifies the means, and social cooperation
increasingly turns into a fight over privileges. Philosophy is therefore discarded as “not useful”,
and replaced for a mix of contradictory ideas called “ideology”.

As the degree of intervention intensifies, social problems arise and the people increasingly tend
to accept higher and higher state controls in order to “solve” the crisis. This is the beginning of
a totalitarian society, where individual liberties are in danger and eventually may be completely
lost (Hayek, 1944).

Since interventionism is often based in nationalist rhetoric, then it usually entails bellicosity.
As the quote attributed to Frédéric Bastiat8 says, “When goods do not cross borders, armies
will”. Statism is the path to destructionism. Nevertheless, the source of this is not nationalism,
nor interventionism as such, but the fundamental misunderstanding of social phenomena: to
confuse spontaneous with created order.

Given that society is a bottom-up phenomenon, what kind of political system is more suitable
according to its nature? As we will see next, direct democracy fulfills this purpose.

IV. A Bottom-up political process for a bottom-up system

Direct democracy is that system where citizens vote directly on political initiatives. As such,
we can identify different applications of this idea (IDEA, 2008, 10):

“Referendums are procedures which give the electorate a direct vote on a

specific political, constitutional or legislative issue…

Citizens’ initiatives allow the electorate to vote on a political, constitutional or

legislative measure proposed by a number of citizens and not by a government,
legislature, or other political authority. To bring an issue to a vote, the proponents of
the measure must gather enough signatures in support of it as the law under which the
initiative is brought forward requires…

Agenda initiatives are procedures by which citizens can organize to place a

particular issue on the agenda of a parliament or legislative assembly. As with citizens’
initiatives, a minimum number of signatures is generally specified by law in order for
the initiative to be brought forward to the legislature. Unlike the procedure followed for

8
See the complete works of Bastiat (1850).
6
 citizens’ initiatives, no popular vote takes place when an agenda initiative is brought
forward…

Recall procedures allow the electorate to vote on whether to end the term of
office of an elected official if enough signatures in support of a recall vote are collected”

As we can see, under this system citizens are able to choose by themselves which policies they
think are the best. As such, the problems with representative democracy are minimized. This is
so because, under direct democracy, the focus is not set in the representatives of the citizens,
but in the policies themselves. As such, the citizens are the true main characters of the elective
process.

As a spontaneous order, society benefits from an elective system that works from the bottom-
up. In order to choose, citizens must get to a consensus and as consequence, they must increase
sympathy (Smith, 1759) and understanding between one another. This, in turn, increases their
disposition to cooperate and exchange, thus furthering the proper functioning of the system
towards progress. Moreover, under this system, the elective process need not be mediated by
representatives that can be influenced or sponsored by lobbies9, and the focus changes from
political campaigns to the content of the elective process as such.

Voting, although still of a marginal nature, is nevertheless understood as a relevant approval

or disapproval of a specific policy, and not only a vote of trust to a specific candidate. The
incentives are not set to promote competition by politicians, but by political initiatives.

As an example, let us study the case of Switzerland (Fossedal, 2002a). The following table
explains why, if political freedom is the goal of a prosperous and modern society, direct
democracy is the best system to attain it.

Act of U.S. / European "representative

Swiss "direct democracy"
sovereignty democracy"
People may have direct vote
Pass a law People have no direct role
(initiative)
Challenge a law
passed by People cannot do directly; a law can be
People can do directly (referendum)
parliament or challenged only through their representatives
congress

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“Also consider that lobbyists—this annoying race of lobbyists—cannot exist in a municipality or small region.
The Europeans, thanks to the centralization of (some) power with the European Commission in Brussels, are
quickly discovering the existence of these mutants coming to manipulate democracy for the sake of some large
corporation. By influencing one single decision or regulation in Brussels, a single lobbyist gets a large bang. It is
a much larger payoff (at low cost) than with municipalities, which would require armies of lobbyists trying to
convince people while embedded in their communities. Consider, too, the other effect of scale: small corporations
are less likely to have lobbyists” (emphasis ours) Taleb (2012, 89-90).

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 No role for popular vote at all unless
Ratify a treaty Requires popular vote
government desires it as a special measure
Some elite must initiate (Congress or
People can do directly with no elite
Alter the convention) and a direct popular vote plays
support (initiative) and must approve
constitution no role (ratification is by 3/4 of state
for any change to be made
legislatures)
Choose chief People vote directly (in some countries) or
People vote only through parliament
executive more directly (in the U.S.)
Send criminal to People through a randomly selected
People through a randomly selected jury
jail jury
Confer citizenship Popular (communal or cantonal) vote Decision of magistrate (usually non-elected)
Arguably impossible; in practice
Declare federal
happens only when constitution is Can be done by non-elected court (U.S.,
law
altered—which requires a popular Germany, France, other)
unconstitutional
vote
Source: Fossedal (2002b, 256)

Thus, we can see that in this system the authorities are the citizens, because they are both the
real authors and actors behind fundamental political choices10:

“Among the Swiss parliamentarians, there is a kind of despair about the utility
or possibility of manipulating other elites for political gain: What would be the point?
That ‘despair,’ of course, is another way of saying, healthy respect for and orientation
toward the people. Politics, then, is less tactical and more substantive. There are,
interestingly, fewer appeals to ‘the people,’ and still less to opinion polls, than in a
typical Western democratic assembly. In these, the regular citation of the people shows
in a certain way that the people are taken into account, but also, that their voice will not
automatically be heard. For many votes and issues, the people will never have a direct
voice; hence their voice must be leveraged, inferred, or ‘brought into the discussion.’
In the Swiss assembly, there is a constant, pervasive knowledge that on anything
controversial, the people will, willy-nilly, have the final say anyway. They are no more

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Moreover, their opinion is more likely to be taken seriously: “There are, finally, all the cases in which the
initiatives and referendum process ‘created a law’ without a specific referendum ever taking place. This happens
when the politician in Bern, sensing popular concern and anticipating an initiative by the citizens, proposes and
enacts a law addressing the problem before the initiative is necessary. Or when legislators, knowing a certain
proposition they may admire will inevitably be overturned by a facultative referendum, vote against it themselves.
This can happen in a purely representative democracy too, of course, but notice how the effect is stronger and
more direct in the case of initiative and referendum. The member of Congress who casts an unpopular vote may
jeopardize his own reelection, but of course the voters will render their judgment on that based on hundreds of
votes. A Swiss parliamentarian likewise can vote for an unpopular measure out of personal conviction or
misguided judgment, but he has even less inventive to, since the measure, if truly unpopular, will almost certainly
be overturned. It is a much higher certainty than in systems where elites have greater discretion to substitute their
own judgments.” (emphasis ours) (Fossedal, 2002b, 102).
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 cited or appealed to than the air we breathe; they are simply there.” (emphasis ours)
(Fossedal, 2002b, 80)

In the same way that the citizens become the main characters in politics, politicians have the
incentive of (in order to remain in office) respecting their will (as closer to a market system
that a political process could get):

“The Swiss system of citizen legislation facilitates a much quicker and more
accurate matching of public policy to the will of the electorate. The difference between
it and purely representative democracy is illustrated if we imagine a system in which
you could pick only which grocery store someone else would shop at for you—or, still
further, if you could select between three or four carts that had been previously filled
by people at the store, but could not stock the carts yourself. It is possible, particularly
if leaders are respectful of the popular will, to communicate what groceries you want to
the cart fillers. Over time, you might find one of them consistently putting eggs into the
cart. But even if he did, he might also tend to purchase $20 worth of Spam, which you
don’t want, or to buy 2 percent milk instead of your preference, skimmed. There would
only be very rough approximations of your desires, though. And in a system of
representative elections, remember, the voters are only able to communicate with the
"cart stockers" once every few years and when they do, rather than giving elaborate
instructions they vote yes or no for one of them, accepting all the choices they didn’t
like in the bargain.

Imagine if, after acclimating yourself to this system, you were suddenly allowed
to make periodic trips to the grocery store yourself, and pick out your own items. You
would have an immense feeling of relief as you knew that, from time to time, you could
take care of some of the neglected items. Sophisticated grocery stores would watch
carefully to see what you picked out when you had a chance, and use this as a signal to
improve their own purchases.” (emphasis ours) (Fossedal, 2002b, 113)

Because of this feedback in electoral processes, the system of direct democracy is more suitable
to apply to society as a complex system. By guaranteeing feedback between citizens and
political institutions, the system self-regulates through trial and error, thus enhancing its
stability.

Since the key to the system is the citizen’s participation, the incentive is to establish smaller
jurisdictions of vote rather than big ones, in order to both retain the citizen’s interest in the
electoral process and to give it the chance of actually perceiving the consequences of policies

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in their own area11. Thus, it is able to see if the policies enacted had good or bad consequences
and therefore act accordingly in voting on initiatives to improve them.

Moreover, a municipality is the proper political unit in order to apply this system. It represents
the optimum scale both with respect to the number of citizens and for giving the possibility to
these of checking the consequences of policies. As Nassim Nicholas Taleb (2012, 88-89)
explains:

“Further, biology plays a role in a municipal environment, not in a larger system.

An administration is shielded from having to feel the sting of shame (with flushing in
his face), a biological reaction to overspending and other failures such as killing people
in Vietnam. Eye contact with one’s peers changes one’s behavior. But for a
deskgrounded office leech, a number is a just a number. Someone you see in church
Sunday morning would feel uncomfortable for his mistakes—and more responsible for
them. On the small, local scale, his body and biological response would direct him to
avoid causing harm to others. On a large scale, others are abstract items; given the lack
of social contact with the people concerned, the civil servant’s brain leads rather than
his emotions—with numbers, spreadsheets, statistics, more spreadsheets, and theories.
When I expressed this idea to my co-author Mark Blyth, he blurted out the obvious:
‘Stalin could not have existed in a municipality’.”

Therefore, Switzerland is a stable system because “Just as the income of the cab driver shows
instability on a daily basis but annual stability, likewise Switzerland shows stability at the
aggregate level, as the ensemble of cantons produces a solid system” (Taleb, 2012, 88). And
direct democracy is the key to its stable nature, as it provides the necessary feedback between
the citizens and political institutions in order to solve problems through trial and error, and if
negative unintended consequences may appear, they will tend to have a specific limited effect.
In opposition, top-down intervention as the type characteristic of representative democracy
involves systemic risk.

“…the most stable country in the world does not have a government. And it is
not stable in spite of not having a government; it is stable because it does not have one

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“There is another issue with the abstract state, a psychological one. We humans scorn what is not concrete. We
are more easily swayed by a crying baby than by thousands of people dying elsewhere that do not make it to our
living room through the TV set. The one case is a tragedy, the other a statistic. Our emotional energy is blind to
probability. The media make things worse as they play on our infatuation with anecdotes, our thirst for the
sensational, and they cause a great deal of unfairness that way. At the present time, one person is dying of diabetes
every seven seconds, but the news can only talk about victims of hurricanes with houses flying in the air. The
problem is that by creating bureaucracies, we put civil servants in a position to make decisions based on abstract
and theoretical matters, with the illusion that they will be making them in a rational, accountable way.” (emphasis
ours) Taleb (2012, 89).
10
 … Its currency works best (at the time of writing it proved to be the safest), yet its
central bank is tiny, even relative to its size…It is not quite true that the Swiss do not
have a government. What they do not have is a large central government, or what the
common discourse describes as “the” government—what governs them is entirely
bottom-up, municipal of sorts, regional entities called cantons, near-sovereign mini-
states united in a confederation… But this bottom-up form of dictatorship provides
protection against the romanticism of utopias, since no big ideas can be generated in
such an unintellectual atmosphere…Note for now that this is the last major country that
is not a nation-state, but rather a collection of small municipalities left to their own
devices.” (emphasis ours) (Taleb, 2012 87)

Direct democracy is the system of the future. Today, when practically every citizen owns a
smart phone, and while we are witnessing the development of safe and advanced technology
such as Bitcoin and Blockchain, we can very well expect that in the future citizens could vote
political initiatives directly through their phones. As such, technology would enhance
democracy as never before. But, of course, the underlying system would still be direct
democracy.

V. Conclusion

As we have argued throughout this work, direct democracy is, within the possibilities of
democracy as such, much better than representative democracy in furthering the interests of
the citizens.

Moreover, since society is a spontaneous order which evolves through an organic process of
trial and error, direct democracy is a system which provides society with the necessary
feedback between elected officials and citizens. This works both to further the citizens’
interests and to avoid systemic risks associated with the unintended consequences of top-down
intervention.

Further, direct democracy has already proven its efficacy in promoting stability and welfare as
presented by the case of Switzerland. Far from being an “ivory tower” idea with no empirical
application, direct democracy has provided such a success that, within a continent where
centralization and top-down planning are widespread, one of the countries expounding such
system decided to keep it. While at the same time, thrive like no other.

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