America at 250: The Bargain at the Heart of American Capitalism

Thank you for joining us this Saturday morning. Throughout the year, we’ll feature pieces centered on our country’s 250th birthday, or “A250.” Today we’re diving into the catalyst for the greatest engine of wealth creation and innovation in human history: American capitalism.

We’ll get right to it.

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If there’s a bargain that defines the American brand of capitalism, it’s this: our risk-takers will produce innovations – and reap rewards – that are impossible anywhere else in the world. At the same time, our society will experience inequality in ways others will not, and the upheavals that accompany it.

From the railroad to the Pullman Strike, from the internet to Occupy Wall Street, American capitalism is simultaneously responsible for mesmerizing human progress and periodic social unrest. This contrast underpins most political tensions that have existed since the Industrial Revolution.

The question each person must answer individually is: Is it worth it?

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If you value continuous growth in overall wealth and human capability, the answer is unequivocally yes. 

“We’re pleased to report the American middle class is indeed ‘hollowing out’ – because ever more Americans are earning their way into higher income brackets,” the Wall Street Journal editorial board wrote this month. 

An analysis of inflation-adjusted income levels from the 1970s onward shows remarkable income growth. For example, 10% of families fell into the upper middle class in 1979; now, 31% do. 

America is far richer than even our European counterparts. “On a per-person basis, American economic output is now about 40% higher than in western Europe and Canada,” the Economist reported. “Average wages in America’s poorest state, Mississippi, are higher than the averages in Britain, Canada, and Germany.”

Why? There are thousands of reasons, but philosophically they reduce to this: the American way prizes the individual, whereas the European way prizes the collective. For 250 years, our culture has encouraged risk-takers to try, and if they fail, they should try again. 

The Spectator of London in 1884 marveled at the American appetite for risk: “[Whereas an Englishman] fears poverty excessively, and a Frenchman shoots himself to avoid it; an American with a million will speculate to win ten.”

In the 1790s, state legislatures had to authorize corporate charters. It took just two decades for state legislative bodies to begin scrapping that system in favor of individual initiative. 

“In 1811 New York enacted a law establishing general incorporation for manufacturing. Other states followed. New York doubled down in 1838 with a ‘free banking’ law – again, replacing a system of legislative charter,” the Wall Street Journal reported. “Pause for a moment on the social implications: Capitalistic startups, formerly granted from above, now arose from the individual. Any who satisfied basic statutory requirements could incorporate a business under the protective shelter – crucial to raising capital – of limited liability.”

This system has produced spectacular winners. Elon Musk, whose net worth is now around $700 billion, launches more rockets into space than all the world’s governments combined. Nowhere else do the statutory, regulatory, and cultural forces mix to allow for such success.

The system also produces losers. Yes, America is wealthier than Europe, but there’s a much larger gap between the haves and have-nots in the U.S. than elsewhere. 

Low-income Americans still enjoy a better quality of life – from food to entertainment – than the vast majority of other people on the planet. But they don’t compare their lot in life to those in Somali villages or Indian slums. They look at the ostentatious displays of wealth from out-of-touch American elites, or unscrupulous behavior from white-collar scammers, and say: This isn’t right.

And it’s true that inequality has widened in recent decades. “In 1979, the top 1% of earners took home 10% of the pie; today it is higher than 20%,” the Wall Street Journal reported. Some headline-grabbing measures that report mass hunger or abject poverty are flawed because they (maybe intentionally) fail to account for government subsidy transfers. 

But a drive down a street on the “wrong” side of town, or even a walk down a New York City avenue, shows that many Americans live in challenging socioeconomic circumstances compared to the middle and upper-middle classes.

This is partly the unavoidable byproduct of American capitalism. The cultural attachment to individual initiative, rather than collective support, necessarily means some will produce world-changing inventions while others get left behind.

At its best, the American Dream rests on a radical and humane assumption: that lower-, middle-, and upper-income earners are not different kinds of people, but often the same people at different points in time. The distinction is not destiny, but duration. Years spent learning, risking, failing, compounding effort, or seizing opportunity. This belief does not promise equal outcomes, but it preserves equal possibility. As economist Milton Friedman observed, “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” American capitalism’s enduring power lies in that freedom… the faith that today’s circumstances are not a verdict, but a chapter, and that with time, initiative, and luck, the story can still change.

The challenge for the next 250 years is to maintain that system while balancing the real social strains it creates. American capitalism is responsible for some of humanity’s greatest achievements. The question, as it has always been, is whether we’re willing to accept, and address, its imperfections in exchange for its capacity to propel humanity ever forward.