"But there's more. Sue would end up with more money if she gave the loan, so she really has nothing to lose, and is therefore acting perversely."

Elliot, this really does not capture the argument.

There are two separate steps that one needs to understand, before one understands the usefullness of democracy.

1. People can unanimously agree in their own minds that they want to do something to get something; and also all agree to have themselves held responsible for doing what they have obligated themselves to do. A person may agree to something in exchange for everyone else being obligated to do what he promises, as well. In some cases 100% of people may vote to do something AND rationally vote for enforcement of the agreement.

2. Once the rationality for unanimous voting in favor of enforcement of contracts is understood, then the rationale for agreeing to participate in other "real-world" voting, where one can end up in the minority, can also be understood. But I'd like to focus on the rationale for *voting* to enforce contracts now, when 100% agree on the contract, because it is not clear that you understand this.

Back to your analogy. Let's say that instead of Sue giving a loan to Joe, instead Sue has capital equipment that she WANTS to give to Joe in exchange for money that Joe WANTS to exchange to Sue. So both want to trade money for capital equipment. But assume that each must leave his goods in different parts of the woods at night for the other to pick up, but both are affraid the other will not leave his respective good (money or capital equipment). And assume they will never see each other.

A selfish Joe could think,
"If I don't leave the money in the woods and Sue leaves the capital goods, I make off with the money and the capital goods. But if I don't leave the money and Sue does not leave the capital goods, then I was smart not to have left the money in the woods, because Sue was not intending to leave her capital goods, anyway. So no matter what Sue does, (a selfish Joe thinks!) I am better off not leaving the money."

But this reasoning applies (in reverse) to Sue, as well. So no matter what the other does, it is in each one's selfish interest not to leave his goods in the woods, and no trade takes place.

So amongst selfish individuals, no trade takes place, THOUGH IT WOULD HAVE BENEFITED BOTH OF THEM. This situation is a variant of a non-iterated prisoners dilema, which is a type of "public good" problem involving 2 people.

If Sue and Joe (by themselves) tried to exchange purely voluntarily using the woods at night, the trade might not take place. So voluntary interaction, without enforcement of contracts, may not lead to optimal results.

But if both could VOTE for the following option and both in fact vote for enforcement, the trade could take place.

"If either Sue or Joe fails to deliver the goods, a policeman will track either one down and force him or her to give up his/her goods."

(Honesty of policemen is an interesting problem. Whether it is easy to verify and track the honesty of the police is an interesting discussion, but perhaps one that you would be willing to discuss with me later).

The point is, a mutually beneficial trade can take place when each one votes for two things:

1. for the trade to occur (so we know what each one wants) and
2. for the enforcement of the agreement if both agree to the trade (So each is willing to allow him/herself to be violently coerced, in exchange for the other agreeing to being violently coerced, if either breaks his promise).

The key to understanding democracy is to understand that 100% of people may vote for each person to take a particular action (e.g. follow a law, or pool money for a community project). And 100% may vote to have the contract enforced if some individual does not follow his agreed upon behavior.

One can understand the usefullness of democracy only if one first understands that:
1. If the enforcement of a contract is fair (by the police) then
2. It could be rational for 100% of people to vote to be coerced into following a contract, even if an individual party to the contract later decides to not follow the contract he voted for.

What does voting for being "coerced into following a contract" mean? In certain situations a voting individual may vote for the contract plus the enforcement of the contract, but later change his mind, perhaps because others have already contributed and the project is finished, so he no longer sees the need to pay. Being "coerced into following the contract" means that such an individual can be coerced into paying the community, even if he now refuses, because he agreed in advance to the application of force, if he ultimately refuses to pay.

If you can not see how 100% of the people could rationally vote for enforcement of a fair contract voted by 100% of the people, even if someone later reneges on the contract, then you will not be able to understand the benefits of democracy, and further discussion is not userful.

The first vote in establishing a just society, in my view, is for all to agree that contracts, voluntarily agreed to, must be enforced.

But if you can in fact see how enforcement of voluntarily agreed upon contracts benefits trade and can better humanity from a moral perspective, and if you can see that 100% of a particular group of people could vote for that; then we can proceed in seeing how a just society, utilizing democracy, could form. And I will be able to explain to you how agreeeing to voting, even if one sometimes is in the minority can, from a certain perspective, reflect the unanimous will of all.