Democracy, the Market, and the Logic of Social Choice

This article compares the types of knowledge democracy and the market require to rationally allocate resources. I argue that high levels of public ignorance and voters ’ inability to compare the effects of different parties ’ policies make it difficult for parties and elections to rationally allocate resources. Markets mitigate these problems because the simultaneous existence of multiple firms ’ products facilitates comparisons that mimic the conditions of scientific experimentation. The economy of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets, instead of political parties and elections, to allocate scarce resources. However, in contrast to arguments that markets merely provide better information than political decisions, I argue markets ’ epistemic advantages are derived from the way they facilitate comparisons that minimize decision makers ’ need for knowledge or understanding. Few men ever really understand their institu-tions. —William Riker Theoptimalmethod for allocating scarce resourcesamong competing ends constitutes one of themost general questions occupying the social sci-ences.While different societies have used various political and economic systems to allocate resources,modern soci-eties rely on two institutions, democracy and the market, and two organizations, private firms and political parties, to produce and distribute goods (Anderson 2006; Arrow 1963; Hall 1997). The relative merits of these institutions and organizations constitute enduring debates within the social sciences. Modern institutions and organizations have been studied from a range of perspectives. Social choice theorists have examined problems associated with preference consistency, transitivity, and collective actio