by Ted Wachtel
The Spirit of 1776 —The Twin Pillars of Democratic Capitalism
“Governments are instituted among Men, deriving their just powers from the consent of the governed…”
Jefferson’s final draft of the Declaration of Independence, published on July 4, 1776, proposed an ideal of democracy that did not exist anywhere in the world, and which we still aspire to fully achieve: government with the consent of the governed.
At the time, men like Jefferson still owned African slaves, and men without property and women did not have the right to vote. But we have evolved. America is a work in progress, an imperfect but noble experiment in democratic capitalism.
The Declaration of Independence is one of two written documents that embody “The Spirit of 1776,” which made the American experiment an inspiration to people around the globe. The other is The Wealth of Nations, published four months earlier—March, 1776—by philosopher and economist Adam Smith in Scotland. These two documents, to my way of thinking, represent the twin pillars of democratic capitalism.
Smith’s ideas about enterprise were just as revolutionary as Jefferson’s ideas about governance, and just as firmly based in democratic decision-making. While Jefferson believed we were not made to live under tyranny, Smith declared that we were not made to live in poverty. Smith advocated economic democracy, just as Jefferson advocated political democracy.
Under Thomas Jefferson’s vision of governance, people’s collective decisions at the ballot box would guide the government. Under Adam Smith’s vision of enterprise, people’s collective decisions in the marketplace would guide the economy.
Smith called for free markets and free trade, challenging the prevailing practice of government intervention in eighteenth-century economies. He warned that when government granted monopolistic corporate charters, tax preferences and other privileges to certain members of the economy at the expense of others, it disrupted the well-being of that economy.
The Invisible Hand of Competition
Smith argued that competition — the self-interested actions of buyers and sellers in the marketplace — would regulate the economy automatically, like an “invisible hand,” ensuring the maximum efficiency of the system. Smith has been characterized by many liberals as simply justifying selfishness, but that’s not true. He knew that in order to create an effective and productive capitalist system, individuals must pursue the interests of both the self and society.
In 1998, Robert J. Samuelson, the well-known Washington post columnist, wrote a scathing but balanced defense of Smith — chiding both liberals and conservatives:
Liberals are so protective of government that they cannot concede the great power of Smith’s “invisible hand.” Self-interest is not simply greed, selfishness or narcissism. If properly constrained, it is an immense force for social good, and much human progress stems from the independent exertions and creative energies of individuals and enterprises. Liberals recoil at this notion because it deprives them of the power, social status and psychological gratification of seeming to deliver (through government) all the trappings of the good society.
Meanwhile, conservatives are so contemptuous of government that they cannot admit that it is often more than a necessary evil. It creates the legal and political framework without which tolerably free markets could not survive. It also supplies the collective services—from defense to roads—that the private market doesn’t, and deals with the market’s unwanted excesses.
The Creation of the Free Market
The spirit of Adam Smith became an integral part of the American experiment. In 1787, when the new American constitution created a democratic republic, it simultaneously created a free market that employed the wisdom of Adam Smith—prohibiting all taxes between the states. That decision was incorporated into Article One, Section 9 of the United States Constitution:
No Tax or Duty shall be laid on Articles exported from any State. No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another…
In taking this step, the framers of the U.S. Constitution invented a large free trade zone, a “common market” that European countries would emulate almost two centuries later. These free trade zones demonstrate Smith’s assertion that unfettered trade maximizes prosperity and economic wellbeing, at the same time recognizing that the rapid globalization of free trade has had harsh and unintended consequences for many.
Smith would have agreed that government has a responsibility for its citizens’ wellbeing, and must take a strong role in dealing with what Samuelson (above) called “the market’s unwanted excesses.”
But something’s gone wrong. The corruption of our political system has distorted our economic system and our ability to deal effectively with critical problems facing Americans. We have neither a functioning democracy nor a free marketplace. Adam Smith’s warning is still valid—when the government gives tax preferences and other special privileges to certain members of the economy at the expense of others, it disrupts the wellbeing of the economy.
The Spirit of 1776 that once inspired people around the world is now threatened as never before. The non-partisan approach to the way we choose our government leaders embraced by Building A New Reality will go a long way toward removing the opportunity for such threats to exist and thrive. Please join us in sharing these ideas, to help empower yourself, your friends and loved ones to take back our democracy. Power to the people.