America's Wealth Relies on the Founding Fathers' Democracy, But This Legacy is in Danger

In 1831, French thinker Alexis de Tocqueville, who visited the young United States, was deeply impressed by the insatiable appetite of Americans for commerce, industry, and wealth. In his famous work "Democracy in America", he explained this situation by noting that nothing could hinder the country's entrepreneurial spirit. According to Tocqueville, the foundation of this astonishing commercial energy among Americans undoubtedly lay in the democratic institutions built by the Founding Fathers. As the 250th anniversary of the Declaration of Independence approaches, the USA confirms this historical vision as the world's largest, most dynamic, and wealthiest economy. However, as pointed out by The Wall Street Journal analyst Greg Ip, a close examination of the country's political and economic foundations reveals that serious cracks are beginning to form today.

As detailed by Nobel laureate economists Daron Acemoğlu and James Robinson in their work "Why Nations Fail", the mere existence of democracy does not single-handedly guarantee economic growth. The primary factor determining a country's level of prosperity is the quality of its founding institutions. According to the authors, "extractive" institutions, which concentrate wealth and power in the hands of a small elite, are the root cause of poverty and inequality. In contrast, "inclusive" institutions, which disperse and limit power, allow all segments of society to participate in economic development. In this context, the English institutions inherited by American colonists and the 1688 Glorious Revolution limited the arbitrary power of monarchs to tax and seize property, laying the groundwork for the USA's future economic success.

The actual framework of America's economic order was clarified by its Constitution, which introduced a system of checks and balances. By preventing the state from violating the natural rights of individuals, this Constitution gave investors confidence regarding taxes, commerce, and contracts. Economist Jesús Fernández-Villaverde describes the Constitution as a "commitment mechanism" that ensures the government will keep its promises to future generations. Virtuous steps, such as George Washington relinquishing his office after two terms, played a critical role in building this political and economic trust. Furthermore, Alexander Hamilton's assumption of state debts elevated the nation's credit rating, paving the way for it to become a global financial power.

Of course, it cannot be said that American institutions have always been fully inclusive, and this has created an economic flaw in the historical process. In the country's early period, a significant portion of economic production relied on the forced labor of enslaved people. Up until the twentieth century, African Americans and women were systematically excluded from equality and economic benefits. Despite this, thanks to a massive immigrant population, expanding borders, and boundless entrepreneurial energy, the country continued to grow at an incredible pace. By the late nineteenth century, the USA transitioned from an agricultural society to an industrialized and urbanized revolution, managing to surpass Great Britain in terms of economic size.

However, today, this economic democracy bequeathed by the Founding Fathers is undergoing a serious transformation and facing threats. Indeed, the growing concentration of economic authority in the hands of former US President Donald Trump is an increasing source of concern, further reinforced by the Supreme Court's recent rulings. This situation brings with it the danger of weakening the classic checks and balances of presidential authority over institutions. On the other hand, the American public's faith in both capitalism and the current democratic system is steadily declining, and socialist ideas are gaining more traction within the Democratic Party. Given the reality that economic freedoms and prosperity can only be sustained by protecting fair and inclusive institutions, the USA's preservation of this institutional heritage is of critical importance in determining its future fate.