Demokratska iluzija: ideja zasnovana na konceptu novčane iluzije
Democratic Illusion: an Idea Based on Concept of Money Illusion

Summary/Abstract: In this paper we present democratic illusion as an idea that is based on the theoretical concept of money illusion. According to John Maynard Keynes, as long as employees expect that along with an increase in their nominal wages, there will be an increase in their real wages, the same employees will not decrease their number of hours worked for the same or even lesser real wage. Keynes states that as long as money illusion persists, labor supply curve does not shift. Money illusion may to some extent explain causal mechanism that leads to coordination failure. Partly due to international treaties that pertain to radical minimization of interventionism, a developing country tends to lose control of its economy. Voting public probably falls into a trap that is democratic illusion similar to the one of money illusion introduced by Keynes; voting public is possibly under impression that nominal value of their democracy is increasing with opening of markets. However, real value of their democracy decreases because the gap between formal and effective democracy widens. Democratic illusion may to some extent explain causal mechanism that leads to coordination failure.

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