The Birth of the Unholy Trinity: Democracy, Welfare, and Bureaucracy
0. Introduction: Skin in the Game
Some might mock me.“What does a small business owner, who spent his days frying schnitzels in a neighborhood shop, know about macroeconomics and political philosophy?”
They are right. I don’t hold a PhD. However, I am a ‘Producer’—the one who actually pays the salaries (taxes) of those so-called “authorities.” This is why I know why their glorified welfare and labor policies are utter bullshit. I have seen firsthand how they suffocate the life out of merchants in the real world.
Academics and bureaucrats are not creators of value. Value is Subjective Use-Value. It does not spring from labor input, as the Leftists claim; it arises from the Entrepreneur’s Risk-Taking. If so, isn’t it more absurd that those who create zero value are the ones dominating the discourse on macroeconomics? If the economy collapses under their theories, what responsibility do they take? None. Discussing economics from the perspective of those who take a direct hit when things fail—that is what I call ‘Skin in the Game.’
Traditional scholars divide the world into ‘Capital’ and ‘Labor.’ Capital is heterogeneous in both scale and nature, and therefore cannot be aggregated at a macroeconomic level. The structure of capital must be analyzed at the microeconomic level. This is why, in ‘The 51% Legal Dictatorship’ series, I will analyze how democracy exploits small business producers. These are the ones shackled by Asset Specificity—unable to flee, forced to shoulder the entire burden of the State’s welfare costs. The structural trap preventing small producers from ever becoming capitalists is the unholy trinity: Democracy + Welfare + Bureaucracy. Frédéric Bastiat called this the “Mill Stone”
Here is the core mechanism by which this Mill Stone plunders the small producer:
- Legislature & Bureaucracy is not a neutral tool. It is a self-augmenting organism that seeks to maximize its own power and budget through regulation and taxation.
- Mass Democracy believes it can control bureaucracy via the vote. However, since the 20th century, the “51% Sovereignty” has been seized by consumers and laborers who lack the means of production. Bureaucracy panders to this majority, using their demands as a pretext to expand its own authority.
- In nations like South Korea, frequent regime changes force politicians and bureaucrats to pander to laborers. This leads them to prioritize redistribution over production. Populist leaders and bureaucrats join forces to neutralize ‘Republicanism’ (the defense of property rights) in a perfectly legal manner. Conversely, in places like Singapore, Dubai, or Georgia, the mechanism for suppressing producers via populism is blocked. While they may lean toward authoritarianism or high inequality, their strict protection of property rights creates a massive incentive for economic activity, leading to growth rates that far outpace their neighbors.
- Theorists like Rawls, Sandel, and Keynes moralize democratic welfare and defend the Giant Government. They elevate consumer and labor rights to a “sacred” status. Yet, when it comes to the neighborhood producer, they hypocritically apply the cold logic of meritocracy.
- The producers who cannot run away due to high Asset Specificity take the heaviest hit. They are the ‘Dalits’ of the democratic welfare state. They are buried under income taxes, high labor costs, social insurance, and “shadow taxes.” The “Right to live like a human” is a state responsibility, not a moral obligation for individual producers to fund the survival of others with their own profits. Why must a producer pay wages far exceeding productivity—including ‘Weekly Holiday Pay’ (a unique law forcing payment even on days off), severance, and insurance? Politicians claim redistribution creates “income-led growth,” but in this structure, even a successful business can never evolve from a labor-intensive bakery to a capital-intensive confectionery corporation. This is why small businesses in Korea, UK instinctively know that “Expansion equals Death” and choose to remain micro-enterprises.
Ultimately, I believe entrepreneurs cannot grow under a system where populism plunders the producer. To understand this better, let us look at the history of the United States—a nation that managed to become an economic superpower while maintaining a democracy.
1. When Giant Bureaucracy, Welfare, and Democracy Collide
(1) The Genesis of American Republicanism
Concerns that democracy could lead to socialism have been raised since the 1800s. Alexis de Tocqueville diagnosed the “Tyranny of the Majority” as the most terrifying risk. He warned that if democracy becomes corrupted, the masses will demand the State take responsibility for their livelihood, leading the State to infringe upon property rights to maintain its power.
The American Founders knew this danger. James Madison, in Federalist No. 10, feared a situation where a majority of the poor would unite to seize the property of the wealthy. Thus, Republicanism emerged—not as a tool for tyranny, but as a system to restrain the size and authority of the government to protect property rights from the “tyranny of the crowd.”
Why did American Republicanism prioritize property rights?
- Natural Rights: Property rights were seen as “Natural Rights” pre-dating the State.
- Foundation of Liberty: Without private property, rights like freedom of speech or religion cannot be sustained. These rights serve as the core engine of capitalism, generating production through profit reinvestment and technological innovation through ideas.
- Absence of Monarchy: Unlike France, where state intervention was normalized due to its dynastic history, the U.S. began with a different ethos.
- Nation of Producers: In its early days, the U.S. was dominated by yeoman farmers and small merchants—the primary creators of value.
American constitutional history is the result of a compromise between Federalists (big government/centralization) and Anti-Federalists (Republicans who favored small government/decentralization).
However, in France, “Republicanism” was interpreted differently. While the goal of community maintenance was the same, the method was the opposite. The U.S. sought Republicanism through Protection of Property and Restraint of Government. France believed it must be realized through a Patriarchal State acting as the agent of sovereignty. They feared that Mass Liberty would lead to the social chaos of the French Revolution.
Frédéric Bastiat lamented that the state elite, entrusted with the General Will, could use the Law to legally plunder property. He argued that if the law guarantees a path to plunder, no one will choose to work. In the French Jacobin Constitution of 1793, the legislature seized all power, creating a Dictatorship of the People. There was no constitutional check to protect private property or minorities. Robespierre took it further, triggering hyperinflation through his Reign of Terror. When producers and farmers refused to sell grain in protest, he branded them Enemies of the People and executed them.
Nations like modern South Korea, where democracy has degenerated into populism, resemble the Jacobin system. A unicameral legislature is ruthlessly plundering property owners and entrepreneurs, using impeachment and budget powers as weapons. The ruling party has allowed the currency value to plummet by over 40% in 6 years while labeling critics as “Far-right Fascists.” Over 3 million small businesses have closed in the last three years, and 55% of corporations cannot pay a single cent in corporate tax, yet the tyranny shows no signs of stopping.
Why Research on Democracy and Capitalism is Confusing
History shows that protecting property rights promotes democracy, but democracy does not always promote property rights. Modern research is conflicted.
William Bernstein, in The Birth of Plenty, argued that property rights drive innovation and lead to democracy. He correctly noted that even a one-party state like Singapore can prosper if it protects property rights. However, he failed to mention that democracy can inversely suppress them.
Daron Acemoglu argued that “Inclusive Institutions” of democracy drive economic development, famously using the “North/South Korea” comparison to win a Nobel Prize. Yet, if his theory were true, modern South Korea—at its peak of democratization—should be exploding with growth.
The reality? The world’s lowest birth rate. The highest suicide rate. The death of economic dynamism. Acemoglu mistaken the ‘republican legacy’ of private property protection and the rule of law as an exclusive attribute of mass democracy. South Korea’s miracle was not an achievement of democracy, but rather the result of a republican engine—namely, ‘commercial freedom and the protection of property rights’—which operated thoroughly even under an authoritarian regime.
The giants leading the Korean economy (Semiconductors, Defense, Automotive) were all born during the military dictatorship. It is undeniable that suffrage was restricted during the military dictatorship, and that cronyism and authoritarianism prevailed. However, commercial freedom was guaranteed to an unprecedented degree, and private property rights were firmly secured. Consequently, economic activities flourished across all sectors, including production and distribution, enabling the government to achieve the economic growth known as the ‘Miracle on the Han River’ by attracting foreign capital.
Ironically, democratization was by no means a utopia. In the post-democratization era, the monopolies and oligopolies of conglomerates became even more entrenched. Since few businesses could meet the stringent standards demanded by consumer advocacy groups and labor unions, these demands functioned as barriers to market entry. Infringements on private property rights through regulation and taxation became frequent, fueling higher uncertainty, and consequently, low growth became the norm. As state interventionism under the guise of democratization permeates every sector of society—including the economy, ethics, and law—the public’s propensity to save has hit rock bottom. Acemoglu confused Republicanism with Democracy. What he calls “Inclusive Institutions”—protection of property, dismantling of monopolies, and the Rule of Law—is not Mass Democracy; it is the American Republicanism that sought to check it.
(2) The Collapse of American Republicanism and the “Unblockable Attack” of Morality
To understand whether democracy is your shield or your predator, you must understand Republicanism. But the State never teaches this because it would break the Matrix. In Korea, “Republicanism” is misunderstood as “pro-rich,” “pro-dictator,” or “Far-right Fascism.” In reality, American Republicanism was an ideology born of small merchants and farmers fighting against the big capital of Federalism to defend their own sovereignty.
The Birth of the Shield and Madison’s Warning
Originally, the United States was a nation in a delicate, high-stakes balance. On one side were the Federalists, hungry for a massive central government; on the other were the Anti-Federalists, who treated state violence with absolute suspicion. The heart of this Republican shield was the Senate. The Founding Fathers lived in fear of two things: the populist madness of the crowd and the runaway momentum of a federal bureaucracy. This is why, until 1913, Senators were not elected by popular vote. Instead, they were appointed by their respective State Legislatures. It was a deliberate firewall designed to distance the Senate from the “fury of the mob.” At the Constitutional Convention of 1787, James Madison hammered this purpose home:
“The first object of the Senate is to protect the people from their rulers… wisdom must be exercised to protect the minority of property owners against the tyranny of the majority.”
1913: The Alliance of Populist Rage and Progressive Delusion
By the late 19th century, the shield began to crack. Massive monopolies led by Rockefeller and Carnegie began buying off state legislatures, planting their puppets in the Senate. To the public, the Senate looked like a Millionaires’ Club—a disgusting den of bribery.
Then came the collision: the raw rage of the masses wanting to punish the corrupt elite met the romantic delusion of Progressives who believed “more democracy is always the solution.” In 1913, the public committed a fatal act of self-mutilation, dismantling the very Republican barrier meant to protect them.
The Unblockable Attack (Cheat Code)
What we must observe here is the weapon used to slit the throat of Republicanism: Morality. This was the Unblockable Attack.
Under the binary frame of “Punish the corrupt rich, help the suffering poor,” any rational critique regarding constitutional balance was immediately smeared as “evil sophistry defending the status quo.” Democracy was sanctified as an Absolute Good, fused with a moral high ground that made it untouchable.
If the U.S. used Morality as its cheat code, nations like France and South Korea—where systems were overthrown via revolution—use ‘Death and Martyrdom’ as theirs. “How dare you criticize the democracy bought by the blood of our ancestors?” This has become a form of logical violence that makes rebuttal impossible. While the moral intentions were understandable, the 1913 amendments effectively blew the gates off for a runaway democracy:
- Direct Election of Senators (17th Amendment): Senators, who once had the veto power to block federal overreach on behalf of their States, were stripped of their original purpose. They became clones of the House—beholden to lobbyists, 51% majority whims, and shallow populism.
- Federal Income Tax (16th Amendment): This gave the central government unlimited power to tax personal income. It allowed politicians to campaign on the promise of “Taking from the rich to give to the poor.” This birthed a vicious cycle: buying votes with tax money, then hiking taxes to fund the debt.
Initially, the income tax was a romantic punishment hitting only the top 1% at a rate of 1–7%. But through the fires of World Wars and the Great Depression, the blade eventually turned toward the middle class and all producers. What was meant to catch the rich became the welfare fuel to buy the 51%—and the blood and flesh that feeds the Leviathan of the giant central bureaucracy today.
(3) Statism: Thriving on Crisis
We’ve seen how democracy slaughtered Republicanism. Now, look at how Statism (Giant Bureaucracy) expanded while claiming to serve democracy, all while crushing “Producer Sovereignty” under the guise of redistribution.
Nations like France and South Korea began as monarchies where the State = Father = God. Their bureaucracies were solidified by elites inheriting status. In the U.S., however, the bureaucracy achieved “King” status by managing crises.
Economist Robert Higgs explained this in Crisis and Leviathan through the “Ratchet Effect”: When a crisis (war, depression) hits, the State ignores constitutional constraints to rapidly expand taxation, regulation, and employment. The problem? Once the crisis ends, the state never shrinks back to its previous size. The bloated bureaucracy, the interest groups hooked on subsidies, and a public that has become ideologically submissive ensure the state stays at its new, higher plateau.
For example, the U.S. Federal Government created the IRS and the first income tax in 1862 under the pretext of funding the Civil War. They introduced ‘Greenbacks’ (fiat currency), legally guaranteeing the central government’s power to print money at will. These constitutional deviations accelerated the arrival of the 1913 amendments. After the 1929 Great Depression, the Social Security Act and the New Deal were rolled out in the name of welfare and human rights. The Giant Bureaucracy became a King, wielding absolute power in the name of democracy.
How Democratic Welfare States Crushed Mutual Aid and Local Communities
The vicious cycle operates as follows:
Expansion of the welfare state → Intensified margin pressures on local small businesses due to social insurance and shadow taxes reaching 30–40% of profit → Reduction in local reinvestment and employment → Migration of workers to major cities or industrial zones with higher wage levels → Acceleration of local depopulation → Loss of capacity for local producers to invest in social capital (such as charity and mutual aid) → Erosion of small businesses’ unique competitive advantages, including tradition, reputation, and relational context → Extinction of regional characteristics and a deeper dependence on the state by both producers and residents.
Look at the NGOs receiving government subsidies today. You rarely find them in national defense, policing, or R&D. Most exist for “solidarity,” “welfare,” “human rights,” or “environment”—interests that pander to the 51% (consumers and laborers). They are interest groups wearing the mask of public good. An organization demanding higher crop prices calls it Food National Security.
This happens because the democratic welfare states, acting as the surrogate for national sovereignty, expands its budget for welfare to buy the favor of the masses. However, as centralized agencies take over resource redistribution, the organic local communities led by small business owners have been dismantled.
A small business owner is someone rooted in a specific soil. For them to thrive, the community must be alive. The owner of the local cafe or pub knows the public sentiment better than any bureaucrat; they handle local crises and lead the culture of charity.
In The Practice of Everyday Life Vol. 2, Pierre Mayol and Luce Giard describe ‘Robert’s Grocery’ in Lyon, France. Why does it survive against retail giants? Grandma Marie says: “If there’s an accident or a death in the neighborhood, you go to Robert’s. You hear everything there.” Customers go to Robert because he remembers their history, their tastes, and their families. At a giant mart, you are an anonymous number. At Robert’s, every visit has Subjective Meaning. However, if the welfare state dismantles local communities, the unique advantages that only small businesses can generate—such as tradition, relationships, and reputation—are effectively neutralized.
When local economies are robust, Mutual Aid works naturally. Oppressive policies, like seizing 30% of net profit for social insurance, can’t easily take root. Producers grow through reinvestment, hire locally, and keep money circulating within the community. Consumers pay fewer taxes and enjoy higher-quality, unique local products at lower prices.
But the democratic welfare state hates this autonomy. It wants to hoard the tax and provide Universal Welfare as the sole provider. Regarding this, Bastiat said: ‘It is unjust to plunder another’s property, even for philanthropic purposes.’ Charity is voluntary and just; but state-enforced Philanthropy has no limit. It eventually becomes socialism, where the state is expected to provide luxuries and arts to every remote village by law.
In this regard, we can understand why the Austrian economist Ludwig von Mises, in his early writings, viewed democracy as compatible with liberalism yet simultaneously harbored deep concerns about communization. His affirmation of democracy was strictly rooted in the fact that peaceful transitions of power foster cooperation and the division of labor, thereby maintaining the complex chain of roundabout production; it was by no means because he believed popular rule to be wise or rational.
Rather, he foresaw that a democracy stripped of republicanism—specifically, the strict protection of property rights—is bound to degenerate into a system of legalized plunder by the majority. Ultimately, the state’s monopolization of welfare, which hollows out the mutual aid of local communities, serves as the ideological stepping stone toward socialism.
In the non-Western world, where state welfare is often lacking, mutual aid within families and religious communities is common. In the 19th-century U.S., there was a private medical system called “Lodge Practice.” Members paid just $2 a year—a day’s wage for a laborer—to receive year-round basic medical care for their entire family. Doctors had a stable market and an incentive to provide the best care to avoid being de-listed. Because visiting committees of neighbors monitored the system, there were no welfare free-riders or administrative costs.
However, the American Medical Association (AMA) lobbied to criminalize this, claiming it degraded the dignity of doctors. The final blow was the 1935 Social Security Act. The central government began forcibly collecting taxes for unemployment and old-age pensions. Private communities lost the incentive to maintain their own orphanages or nursing homes.
The only winners were politicians, big bureaucrats, and professional interest groups. Bureaucratic jobs were created, doctors secured monopoly rents, and politicians received lobby funds. For the people, it meant an endless tax burden and uncontrollable moral hazard. The local community, once held together by voluntary solidarity and charity, was liquidated. Small business owners were forced to compete with giants on price alone, stripped of their relational advantage.
The outcome is singular: Formerly self-sufficient producers are now captured within a structure where survival is impossible without the State. A system designed to plunder the producer has been legalized—and sanctified—under the banner of Democracy.
2. The Myths of Keynesianism
(1) The Great Keynesian Superstition
Keynesianism provided the economic theory for the self-augmenting system of democracy, welfare, and bureaucracy. In his 1936 General Theory, Keynes argued that governments should use deficit spending to stimulate aggregate demand during downturns. To a central bureaucracy hungry for power, there was no sweeter proposal.
However, James Buchanan and Richard Wagner argued in Democracy in Deficit (1977) that Keynes ignored the reality of democracy: politicians will always have an incentive to spend recklessly to get re-elected.
If you’ve ever run a shop, you know the Keynesian story is a lie. The market may look chaotic, but it is incredibly effective at creating Effective Demand. In my experience, if two soup shops open on the same street, they start with service competition and eventually settle on price competition. Consumers benefit from better taste, service, and lower prices. This draws more people into the district. A failing shop is replaced by a new cafe. The district becomes more diverse as everyone strives to differentiate for profit. Zero government intervention was required.
Why? In the past, $10 bought $10 of value. When competition lowers prices or raises quality, the consumer gains surplus utility. They spend that psychological and financial surplus elsewhere—on coffee or ice cream. This creates a ripple effect. Shopkeepers risk their lives on their capital; they are hyper-sensitive to opportunity costs and ROI. They create demand out of thin air to survive. No one wastes time just bleeding money.
Keynesianism thinks the opposite. It claims that if the local shops are struggling, the state should tax the people to pave a road so laborers can spend money at the shops. But if the state hadn’t taken the tax in the first place, the shopkeepers and consumers would have activated the market themselves—more efficiently.
The government doesn’t invest its own money. It doesn’t care about opportunity costs or ROI. Whether a business succeeds or fails is irrelevant to them. What matters to the bureaucrat is that their salary arrives on time and they can perform a “show” of solving problems to pacify the masses. As Napoleon once said: “Tell them to dig a ditch and then fill it back up. The result doesn’t matter; what matters is that wealth is circulated to the working class.”
(2) The Market’s Organic Power of Self-Correction
In The Forgotten Depression, James Grant argues that the Great Depression of 1929 lasted over a decade precisely because the government intervened. He points to the forgotten depression of 1920: back then, the government did nothing, and the recovery was lightning-fast.
Following WWI, the U.S. faced brutal inflation. Interest rates were hiked aggressively. Stocks, prices, and wages collapsed; unemployment soared to the high teens. President Warren G. Harding’s response was simple: He cut government spending by 50%. He let failing firms go bankrupt. He let deflation run its course.
This aligns with a passage from the ancient Eastern classic Lao Tzu: ‘governing by doing nothing.’ President Harding was not incompetent; rather, he facilitated a spontaneous market clearing by guaranteeing flexibility in prices and wages. In contrast, while FDR may have appeared charismatic, he disrupted the market through taxes, welfare programs, the confiscation of gold, and the imposition of price ceilings. Such interventions transformed what should have been a short-term Great Depression into a decade-long stagnant malaise.
The result? The Zombies died off, capital and labor efficiency surged, and the economic constitution was hardened. This birthed the “Roaring Twenties,” the greatest golden age in American history. The market self-corrected in just 18 months. Yet, history labels Harding a “do-nothing” incompetent, while FDR—who bloated the bureaucracy and dragged the crisis out for ten years—is hailed as a hero. Why? Because Democracy thrives on showmanship. Under a democratic system, a politician cannot afford the strategy of doing nothing, even if it’s the best one.
Why was the recovery so fast under Harding? Capital is obsessed with opportunity cost and ROI. If you fail, you die. Through a series of liquidations, overvalued labor relative to productivity and malinvested physical capital are returned to the market at deflated prices. This lowers barriers to entry, fostering competition and driving new economic growth. Therefore, money naturally flows to economic agents who can create the most value. The government is not such an agent. Its purpose is the pandering to the masses, maximization of budget and organizational survival. They repeat useless projects—replacing sidewalk blocks or giving free tablets to students. Government stimulus is merely moving money from A to B, losing value through Deadweight Loss and reducing the overall welfare of the people.
(3) The Result of the New Deal: The Permanent Leviathan
In James Q. Wilson’s Bureaucracy, he describes how the Tennessee Valley Authority (TVA) expanded far beyond its original mission of flood control and power generation to become a massive federal utility regulating an entire regional economy.
Once a bureaucratic organ is born, it is nearly impossible to kill. It only grows. This is because it becomes fused with subsidy-dependent beneficiaries, parasitic interest groups, and NGOs. Trump vowed to abolish USAID and failed; President Yoon Suk-yeol declared he would abolish the Ministry of Gender Equality and failed.
The New Deal birthed a permanent legion of giants: the CCC, AAA, TVA, FHA, SEC, FDIC, and SSA. These agencies were never disbanded after their temporary emergency purposes were served. They rule the American economy and society to this day.
| Metric | 1930s | 2020s |
| Federal Register (Regulation Pages) | A few thousand | 107,262 pages (2024) |
| Federal Direct Employment | ~900k (1939) | ~2.91 million (2024) |
| Social Security Beneficiaries | 0 (Est. 1935) | 71.6 million (2024) |
Source: Compiled historical data.
Leftists in Korea and France often romanticize the human touch and warmth of the past. They portray primitive communalism as a pastoral utopia—claimed to be destroyed by military dictators—and indulge in the delusion of creating a “nation never experienced before” through a massive bureaucracy led by the democratization generation. They cloak their hunger for power in Romantic Hypocrisy.
But the “good old days” they pine for had no giant bureaucracy. What they had was a thriving Mutual Aid system rooted in local communities. Regulations and taxes were low. The Keynesianism they worship as a religion didn’t exist. Whether under a dictator or a democracy, an economy only prospers when Republican ideals—the ones that block the legal plunder of property in the name of “philanthropy”—are alive.
Elders in Korea often say life during the dictatorship felt more hopeful than life during the “democratized” era. It was an age where those who wanted to grow were given the chance. The Left refuses to admit this simple historical fact. Ultimately, Keynesianism failed to check the bureaucrat’s instinct for budget maximization and populist politics. Instead, it provided a philosophical indulgence for the infringement of property rights and the debasement of currency. In a mass democracy, the parliament and the government are by no means guardians of the public interest. Instead, they are Leviathans that bow to the demands of the masses to ‘dismantle local communities with law and welfare as weapons, plunder producers, and provide free handouts.’
3. Conclusion
What we have witnessed is not the holy grail called “democracy” — it is a machine of legalized plunder, feeding on the blood of producers to sustain itself. A public armed with the unblockable weapon of moral righteousness, a bureaucracy that grows fat on crisis, and a Keynesianism that handed both of them philosophical absolution — these three form a triangle of predation, systematically violating our property.
But history proves it. Markets do not heal under bureaucratic command. They heal only through the risk-taking of producers and protection of private property rights.
Nas Said: I never sleep, ’cause sleep is the cousin of death.
I Said: I never trust, ’cause Democracy is the cousin of theft.
4. Next Up
How America alone managed to keep capitalism alive inside the grinding machinery of democracy, welfare, and bureaucratic expansion — and how Britain, France, and Korea have been holding on ever since.
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