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Democratic Capitalism: The American way

The Right to Life, Liberty and the Pursuit of Happiness

By Dr. Larry Fedewadrlarryonline.com

Before Capitalism

Through most of human history, there have been two ways by which humans have organized themselves: tribal and totalitarian. Tribes were based on families which came together to form clans, which combined to create tribes. In the end, what united the various clans into a tribe was the culture they all shared – language, values, customs and religion.

The primary driving factor in this move toward greater numbers was the greater power -and defense – afforded by greater numbers and the greater accumulation of wealth made possible by a greater variety of skills and a heightened group ability to take on ever larger projects, such as cities, roads, dwellings, and monuments. These factors eventually resulted in cities and nations. And empires. It was called “civilization”.

Nevertheless, the original loyalties to families and tribes have remained forceful elements in all societies.

As the more advanced “civilizations” grew in power and wealth, they grew also in territory, mostly by conquest of other countries. The management of the conquered territories was solved by the creation of a hierarchy of different classes of inhabitants: the ruler, his direct followers (usually military), the wealthy who provided financial resources, and the poor who were the vast majority of the population, whether slaves, peasants, serfs or servants, who supplied the labor on which the entire nation depended.

The average life span of mankind was about 35 years. This pattern, with a few exceptions, endured for most of human history. Until the 18th century. Then human life began a radical series of changes. Between 1700 and 2020 human life span grew from 35 years to over 70. The average annual income grew from a few dollars a year to $10,000 a year. (Gallup 2012) And world population grew from an average 1% annual increase for 1000’s of years to about 610 million in 1700 and nearly 8 billion in 2020 (Source: Worldometer).

What happened?

Capitalism happened

It started with one of the exceptions to totalitarianism mentioned above. Beginning in the early Middle Ages (c. 11th century), some European merchants began to form caravans to travel from place to place buying and selling merchandise. Since merchants in general were discriminated against in Medieval Europe, they were not subject to any specific prince, and they were freemen. They soon banded together for defense against outlaws and princes alike forming the Great Caravans of Europe. In time, many began to accumulate wealth and became bankers as well as traders. They were the first middle class, instrumental in the formation of the guilds of tradesmen which consolidated the identity of a middle class — neither nobility, peasants nor clergy – all of whom opposed them. [Note: trade routes and caravans existed throughout the ancient world from time immemorial but were not “free” of any jurisdiction.]

There had been numerous intellectuals who taught the separation of Church and State (including Thomas Aquinas in the 13th century) and limited government (e.g. John Wycliff in the 14th century), but none had the political and financial strength to effect cultural changes. In the 18th century, however, these ideas combined with an emerging middle class to begin the most radical change in history. A new movement came into being and caused the revolutions which characterized the next two centuries, from the American Revolution (1776) to the Russian Revolution (1917).

This movement yielded three major views of how a country should be run: socialism and democracy as political systems and capitalism as an economic system. All involved the overthrow of the totalitarian government. The difference was in who led the revolt: the Europeans (and later the South Americans and others) were led by the poor people; the Americans by the middle class. The poor people had no experience of handling money or building an economy. They considered the wealth of the nobility a bottomless pit and they invented socialism. The Americans were led by wealthy middle class lawyers, plantation owners and merchants. They feared the power of governments and invented democratic capitalism.

The different types of socialism will be discussed next week. But first, let’s look at America’s democratic capitalism.

The American Way

The United States of America was a land controlled by people who had escaped both the walls and the comforts of the Old World and had survived in an environment which rewarded courage, skill and endurance, rather than birth and privilege. Their bias was against rather than favorable to government. They saw government as a greedy king out to take away their liberty. They therefore fashioned a government which was limited in every way by competing forces: the federal government by the states, the president by the legislature, each House of Congress was limited by the other, everybody by the courts – and so on down the line to the local dogcatcher.

The purpose behind this design was to keep government officials from ascending to the powers of that old king. They understood intuitively the saying of John Lord Acton a century later: “Power tends to corrupt, and absolute power corrupts absolutely.”

What they have left us is the American version of a capitalist society. It is dynamic, constantly changing. The poor may not always be poor; the rich may not always be rich. In fact, most Americans (58.5 percent) will spend at least one year below the poverty line at some point between ages 25 and 75 according to Yale University’s Jacob S. Hacker (The Great Risk Shift, New York, 2006). The wealth of the society is expected to grow constantly through the creation of new opportunities, new products and services, new jobs, new skills, and new technologies, leading to new and expanding wealth.

For Americans, the fundamental error of socialism is that it does not account for the creation of that wealth in the first place. Government cannot confiscate what isn’t there. Socialists foresee the proverbial pie of underclass income being cut into more and more pieces; Americans keep creating a bigger pie.

America’s Democratic Capitalism

The United States of America has brought together economic capitalism and political democracy in a dynamic tension which we call democratic capitalism, and which has produced the most prosperous nation in the history of the world. Its greater attribute is that it provides hope – hope that the poor may be able to escape the bonds of poverty as so many Americans have done in the past. This hope is the shining city on the hill which still attracts the envy of millions.

It has taken Americans most of our history as a nation to achieve the balance by which capitalism is accountable to democracy, and there are still many problems to be solved. Nevertheless, Americans are always optimistic.

The motivation for individual Americans to persevere in pursuit of their personal goals is provided by the real and potential ownership of private property. No other motivator – not coercion, not slavery, not charity, not communal property – not even religion – has ever been found which can impel vast numbers of individuals in a society to be hard working and creative. Providing a good life for oneself and one’s family is a motivator above all others.

Life, Liberty and the Pursuit of Happiness – the American Way

Our history has proven that personal freedom is a necessary prerequisite for the success of this system. An oppressive government – even if well-intentioned – sucks out the initiative required to make an ever-better life for all of us. Personal freedom without economic freedom is no freedom at all. Capitalism, in a refined and mature linkage with democracy, provides the economic power which makes freedom possible.

The challenge to Americans is not to change an evil system; it is to live up to the ideals which are required for that system to succeed.


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