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.