Jefferson v. Adam Smith

The debate continues

On July 9 Joe Biden announced a new offensive against monopolies in American economic life. Summoning the spirits of Theodore and Franklin Roosevelt, the president declared the democratic necessity of curbing the excesses of capitalism. “It is how we ensure that our economy isn’t about people working for capitalism; it’s about capitalism working for people,” Biden said.

He could have gone deeper. The debate between democracy and capitalism has been under way since 1776, when two manifestos were unleashed upon the world. In that year Thomas Jefferson wrote the Declaration of Independence, which made the “safety and happiness” of the people the foundation of American republican government, and proclaimed the most revolutionary idea in human history: “All men are created equal.” Jefferson’s words became the foundation for democracy, not only in the United States but around the world.

In that same year, Adam Smith, a Scottish economist and philosopher, published An Inquiry into the Nature and Causes of the Wealth of Nations. Smith’s book, emphasizing self-interested competition among producers, became the blueprint for capitalism. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest,” Smith wrote. “We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

Democracy took time to catch on in America, but by the middle of the nineteenth century the idea that ordinary people should exercise political power had become irresistible - even if disputes over which ordinary people should be included continued for decades longer. And Jefferson’s assertion of equality, construed politically, became democracy’s hallmark. In the American political square, all voters are equal.

Capitalism took even longer to develop in America, awaiting the industrial revolution of the late nineteenth century. But by 1900, the American economy had become rampantly capitalist, with the self-interest cited by Smith at its heart. That self-interest generated profound inequality. Producers bring unequal talents to the economic marketplace, which motivates them with unequal rewards.

By then it had grown apparent that democracy and capitalism were in constant tension. Capitalism delivered a rising standard of living but spread that standard unequally. Worse, the economic inequality created by capitalism threatened the political equality required by democracy. John Rockefeller might have just one vote, like each of his thousands of employees, but his hundreds of millions of dollars gave him leverage over the politicians who made the laws they all lived by.

The industrial revolution in America was a capitalist revolution, and at the start of the twentieth century it begot a democratic counterrevolution labeled progressivism. Theodore Roosevelt aimed to rectify the imbalance between democracy and capitalism embodied by Rockefeller and the other moguls. Roosevelt broke up some of the trusts - monopolies - and regulated others. His point was to remind the moguls that in America, democracy governed capitalism, not the other way around.

For most of the twentieth century, the pendulum swung in democracy’s favor, away from capitalism. Woodrow Wilson tamed the money trust by creating the Federal Reserve system. Franklin Roosevelt put Wall Street under permanent scrutiny, and he strengthened industrial democracy by guaranteeing the rights of labor. Lyndon Johnson and Richard Nixon forced capitalism to clean up its act by cleaning up the nation’s air and water.

But by the end of the 1970s, government regulations seemed to many Americans to have grown stifling. First Jimmy Carter and then Ronald Reagan rolled back the reach of democracy, giving capitalism more room to operate. The pendulum, swinging now to the right, continued to move in capitalism’s favor through the 1990s, when even Democrat Bill Clinton declared that “the era of big government is over,” and into the twenty-first century.

Capitalism’s new ascendancy featured a return of the inequality that had characterized the Gilded Age. Not surprisingly, this prompted demands for another democratic counterrevolution: a new progressivism. “Neo-Brandeisian,” many of the new progressives call themselves, for Louis Brandeis, a lawyer and then Supreme Court justice who during the first four decades of the twentieth century argued that robust democracy requires firm restraints on capitalism. Lina Khan, Biden’s new chair of the Federal Trade Commission and the presumed spearhead of the administration’s anti-monopoly offensive, is a proud neo-Brandeisian.

If the offensive takes hold, the pendulum will switch directions once more, away from capitalism and toward democracy. It might well be moving leftward five years from now, when the debate between Jefferson and Smith, between democracy and capitalism, hits the quarter-millennium mark.

It almost certainly won’t keep moving left forever. The debate will continue, maybe for another couple centuries.