By Ted Wachtel

 Historian David McCullough. Photo by William B. McCullough

Historian David McCullough. Photo by William B. McCullough

In a recently published collection of historian David McCullough’s speeches, The American Spirit: Who We Are and What We Stand Forhe said:

“To Jefferson, the Revolution was more than a struggle for independence; it was a struggle for democracy, and thus what he wrote was truly revolutionary.

Why do some men reach for the stars, and so many others never even look up?

Thomas Jefferson reached for the stars:

‘We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…’

Never, never anywhere, had there been a government instituted on the consent of the governed.”

The United States’ Declaration of Independence
The United States’ Declaration of Independence

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 achieve.

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, a noble experiment. We are still reaching for the stars.

The Declaration of Independence is one of two written documents that embody the “Spirit of ’76,” 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 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.

Adam Smith
Adam Smith

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 wellbeing of that economy.

He argued that 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 since been accused of justifying selfishness in business, 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.

Robert J. Samuelson
Robert J. Samuelson

Robert J. Samuelson, in 1998, wrote a scathing but balanced defense of Adam 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.”

Smith realized that government produced these benefits, but many conservatives who cite him seem oblivious to their existence or importance.

Samuelson says that:

  • What concerned Smith was constructing a decent society.
  • Free markets were only one means to that end.
  • Government was another, and Smith constantly probed the proper roles for government and the market.

As much as the spirit of Jefferson, the spirit of Adam Smith became an integral part of the American experiment. 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. Both proved Smith’s assertion that unfettered trade maximizes prosperity and economic wellbeing.

But something’s gone wrong. We no longer have a fully functional democracy or a truly free market. Adam Smith’s warning is still true—that tax preferences and other privileges to certain members of the economy at the expense of others disrupt the wellbeing of the economy.

Our political and economic systems are increasingly distorted by corruption. We’re not just imagining that things are rigged in favor of the rich and powerful. Here are some disturbing facts:

  • In 1949, the richest 1% of Americans owned 21% of all U.S. wealth.
  • Now, only six decades later, the richest 1% of Americans own 43% of all U.S. wealth.
  • In part, the wealthy become wealthier because of favorable tax rates. For example, the wealthy pay only 15 or 20% on their long-term investment income, while wage earners pay as much as 39.6%. The justification is that long-term investments create jobs—but more critical to job growth in a consumer economy is a public that has money to spend.
  • Equally critical to consumer demand are minimum wage laws that keep pace with inflation. The federal minimum hourly wage, for example, has been frozen at $7.25 since 2009.
  • Two full-time minimum wage workers in an American family with two children barely make enough to exceed the family poverty level defined by the U.S. government. Yet the American super-rich have more than doubled their wealth since 1949, at the expense of their fellow Americans.
  • Globally, the problem is worse: the richest 1% own almost as much wealth as the other 99% of all humanity.
Supreme Court Justice Louis Brandeis
U.S. Supreme Court Justice Louis Brandeis, 1916-1939

U.S. Supreme Court Justice Louis Brandeis warned us many decades ago that, “We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” The Spirit of ’76 that once inspired people around the globe is threatened now, as never before.

It’s time to build a new reality.