Democracy as idea and phenomenon is often, by people who never studied history at least, explained as being part of the modern capitalist project; “democracy and market economy” was like a mantra in the end of the last century and a few years into this one. Sure, democracy is part of the “modern” project, but only partly in the way the proponents of capitalism want us to believe. The link between the emergence of parliamentary democracy and capitalism can be a coincidence. There are no democratic nation states that are not market economies, but there are market economies that are not democratic. The market economy and capitalism is also in some regards a competitor to democracy as in many issues there is a choice weather it will be settled by the political institutions or weather it will be settled by “the market”.
Democratic values and institutions did not arise as a direct contradiction of authoritarian forms of governance. Rather they emerged by a gradual change in the principles that governed the distribution of power in society. An oligarchy of military strength, divine right, aristocratic lineage and land gradually gave way to an oligopoly of wealthy merchants. The parliaments of the first stage were congresses of feudal lords. The parliaments of the second were assemblies of rich traders. The idea of universe human rights and freedoms which we now identify as the essence of democracy was at first cited as a justification for redistribution of power to the commercial class and only much later as a principle for extending rights and privileges to all citizens. This shift continues today in countries around the world and may not yet have reached its acme in any country....
The parliamentary state grew first not as a democratic institution, but as a power-sharing arrangement between different elites (see quote above) and there was nothing in capitalism that moved for universal suffrage, not for men and certainly not for women. Conveniently, the inventors of “democracy”, the Greek city states, with Athens at the fore, had perverted the concept already from the beginning by excluding both women and all the slaves. Real democracy could probably only be found in hunter and gatherer societies, where there was no property and no state. The new emerging democracy had exactly those twins as their hallmark.
The pressure on the social structure of the emerging capitalism was enormous. On the labour level people organised themselves in trade unions to balance the power of the industrial capitalist, but capitalism re-shaped all parts of society, so people also turned to the state for more influence over legislation and to develop new social institutions instead of the old ones that were collapsing under the pressures of the new system. Because of the growing individualism which was in a self-reinforcing relationship with capitalism, family institutions also weakened and society had to take over things previously managed by the family, such as learning, nursing children and elderly and health care. The emerging new institutions and the associated welfare state were not only a result of more real democracy, they also provided services which actually were needed for capitalism to work well, which the more foresighted liberals saw early.
The liberal thinker Schumpeter discuss democracy by first stating that it has often been conceived like this: “The democratic method is that institutional arrangement for arriving at political decisions which realizes the common good by making the people itself decide issues through elections of individuals who are to assemble in order to carry out its will”.
In his classic style, he then slaughters this by attacking most of the assumptions. There is no way to determine the common good; what is good for one doesn't have to be good for the other, and even if there indeed would be a distant common good, opinions on how to reach there differ. Therefore, one can also not define the will of the people. He argues against those that claim that there can at least be a fair compromise by saying that that is perhaps possible when one discuss quantitative issues (such as which rate the income tax would be), but not when one discuss qualitative issues (such as if there at all should be an income tax, or if the country should go to war). Schumpeter launches another definition, which he thinks fits better: “the democratic method is that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people's vote.” This is quite different from the first more romantic attempt, but a definition that stands the test of reality and certainly fits the institutions of political parties best and can explain why election campaign are held in the way they are. This definition coincidentally also aligns well with the values of capitalism.
And in a way, that Schumpeter is right is why democracy in our modern societies have been perverted, once more, to be about a fight over power between power groups and not about power of the people, by the people.