America’s Long March Toward Imbalance: 1789–1989

The seeds of this imbalance were sown in the American Revolution. America did not invent democracy so much as give impetus to a particularly individualistic form of it. The people revolted against the authoritarian rule of the British monarchy and thus wrote “checks and balances” into their constitution. While these checked the power of government, by ensuring a certain balance across its executive, legislative, and judicial institutions, no such constitutional constraints checked the power of individuals and nonstate institutions.

As a consequence, the country thrived and became the world’s model for development—social and political as well as economic. For individuals seeking opportunity as well as escape from tyranny, America became the place to go. Even for those who stayed home, it was the place to emulate.

But that model worked only so long as the country maintained some semblance of balance. The power of individuals and their private institutions had to be constrained. That responsibility fell to government, in the form of laws and regulations, as well as to communities that upheld the prevalent social norms.

With the weakening of both government and local communities in recent years, this balance has been lost. Yet the American model remains the favored one in much of the world. Accordingly, we had better understand what has been going on in the United States if we are to find our way to restored balance.

The Rise of the Corporation

The nonstate institutions of the United States are mainly of two types: private businesses—for-profit—and community and other associations—not-for-profit. In his landmark study of Democracy in America in the 1830s, Alexis de Tocqueville recognized the latter as not only quintessentially American but also key to the country’s democracy (1840/2003: 115). He favored the word associations, but they were also referred to back then as “corporations,” as were certain businesses. As the private sector gained increasing influence, however, the word corporation came to be associated more exclusively with businesses.

The U.S. Constitution made no mention of corporations, let alone granted them liberties. The liberties it affirmed were for individual persons, in the spirit of Thomas Jefferson’s immortal words in the Declaration of Independence that “[w]e hold these truths to be self-evident, that all men are created equal.” At the time, “men” meant all white and propertied males. These gender, color, and financial restrictions were eventually eliminated, but not before an 1886 ruling by the Supreme Court reinforced property rights with a vengeance: corporations were recognized as “persons” with “equal protection of the laws.” Granting them this equal protection has made all the difference. From the liberties for individuals enshrined in the American Constitution sprang entitlements for private corporations.

Thomas Jefferson and Abraham Lincoln were highly suspicious of these corporations. Jefferson hoped that “we shall crush … in its birth the aristocracy of our monied corporations, which dare already to challenge our government to a trial by strength.” And Lincoln worried that “corporations have been enthroned” by the Civil War, so that wealth could be “aggregated in a few hands and the republic … destroyed…. God grant that my suspicions may prove groundless.” God did not grant any such thing. Instead, twenty-two years later the Supreme Court granted corporations that personhood mentioned earlier.

This development happened amid the rise of the great business trusts—massive monopolies in oil, steel, and other industries, created by people who came to be called “robber barons.” These trusts were eventually beaten back by the anti-trust legislation of 1890 and 1914, and imbalance was further held in check by President Franklin Roosevelt’s New Deal enacted during the Great Depression of the 1930s as well as the welfare programs established after World War II. But underway at the same time was a “Cold War,” during which American defense spending grew to equal that of the rest of the world combined. And so a third Republican president weighed in on the influence of corporations: Dwight David Eisenhower pointed to a “military-industrial complex” as having “the potential for the disastrous rise of misplaced power.”

Supporting Dogma from Economics

Supporting this march toward imbalance has been an economic perspective that grew into a prevailing dogma (Hayek 1944; Friedman 1962). In its boldest form, this dogma centers on an “economic man” for whom greed is good, property is sacred, markets are sufficient, and governments are suspect. As one view of human society, this makes some sense; as the view of human society, it is nonsense.

But such nonsense did not stop the march toward imbalance; indeed, it expedited it, by providing formal justification for the corporate entitlements. Economics may be changing now—at the margins, at least—but the damage had been done: as greed became a cult, property rights were allowed to run rampant and many markets went out of control. In 1989, two hundred years after the U.S. Constitution had gone into effect, the stage was set for the country’s free fall into imbalance.