Totalitarian Capitalism, an Uncontrolled Market Economy
The market economy, or capitalism, is an economic system in which all parties trade freely with each other, and where supply and demand are in principle the only regulatory factors in the market.
Democracy is a form of government and a political process where the interests of all citizens are balanced against each other. Opinions on the success of this balancing may vary, but that is the idea. Moreover, democracy is based on the humanistic ideals that all people have equal rights and entitlement to respect, and that they are treated with dignity.
Capitalism is a prerequisite for a modern democracy but doesn't in itself contain democratic values or ideals. Capitalism is an economic instrument that can be used to create production without consideration for the human or the environmental cost. Pure capitalism leads to increased wealth among the richest and, depending on the circumstances, it may also lead to some increase in prosperity among the poor, or no improvement for the poorest at all. The market economy does not in itself contain mechanisms that protect the weak from exploitation, nor can it ensure an even distribution of the increased prosperity that it generates. Capitalism has to be regulated if, in the longer run, it is also going to ensure the broad middle class which is the premise of democracy.
If capitalism produces too many people who feel cheated, or who cannot see a way out of their misery, they will be inclined to direct their hope at totalitarian ideologies, religions, anarchy or revolution. A political redistribution of money in the form of social care and free schooling for all, for example, can be seen as democracy's own way of ensuring that it has a broad middle class to support it. Without a certain economic capacity at the bottom of society, people cannot find the will to participate in the political process.
However, unregulated capitalism is not only subversive of democracy, it also undermines itself. If the market economy just descends into all-out war, the strongest will accumulate all the wealth and capital and then market forces will turn out not to be free after all.
At the end of the day, the challenge for democracy is that wealth is power. No matter how you look at it, power mainly follows money. Democracy will therefore in practice always be influenced by whether wealth is dominated by a small number of large business owners, a large number of small home-owners, or divided up in other ways. There is no single solution that is perfect, but there are a number of situations that are not optimal.
Next chapter: Trade and Globalization