December 1, 1998
With Responses From
Jeffersonian capitalism can lead to a more egalitarian economic system
For most of the twentieth century, three broadly identifiable policy paradigms existed for grappling with the economic inequalities generated in advanced capitalist countries. Socialists advocated government ownership; social democrats advocated the welfare state and institutionalized bargaining among capital, labor, and government; and classical liberals advocated personal responsibility in the context of free markets. In the United States, social democrats called themselves "liberals," and classical liberals called themselves "conservatives."
This basic policy triad is now part of the past. Socialism has proven to be neither economically viable nor desirable. Social democracy has not spread beyond the nations in which it gained a stronghold by mid-century, and is in retreat even in many previously solid social democratic countries (e.g., Sweden and England). Classical liberalism is alive and well, but its central contention, that a market economy can operate efficiently and serve the public interest without extensive state intervention, is not supported by economic theory and has no working examples in the modern world.1 Conservatives do perform the often valuable function of dramatizing the excesses of bureaucratic state intervention; their vision of a free market economy might indeed work on another planet, but not likely on this one.
Enter a new paradigm, Jeffersonian capitalism. The Jeffersonian contention is that there are economic policies that can redistribute ownership of productive capital to individuals and small groups, and that these policies can at once be promoted efficiently by governments, remain accountable to the electorate, and lead to a more egalitarian economic system through the decentralized activities of individuals in competitive markets. Why "Jeffersonian"? Thomas Jefferson's draft of the Virginia Constitution of 1776 included a radical provision for freeborn male suffrage with the rather minimal property qualification of 25 acres. In the same document, we find Jefferson advocating that "every person of full age neither owning or having owned 50 acres of land shall be entitled to an appropriation of 50 acres."2The personal autonomy on which a democratic society must be based, in Jefferson's eyes, required an end to economic dependence and hence secure access to the means of one's livelihood.
Like Jeff Gates and others, Samuel Bowles and I have sought to revive and update the Jeffersonian vision, providing a foundation for its egalitarianism in the realities of modern economic life and addressing the related problem of the accountability of power. Our "neo-Jeffersonian" paradigm is based on three constitutional desiderata governing the nature and assignment of property rights and other rights of governance. First, policies of redistribution should seek to implement a sustainable assignment of private property rights that make economic actors both effective decision makers and the owners of the results of their actions. Second, insurance-based policies of redistribution should seek to indemnify individuals against risks they cannot avoid and over which they have no control, including accidents of birth, while maintaining individual responsibility for the consequences of one's own actions. Third, state, market, and community should be complementary to, not competing against, governance structures. Government policies should seek not to supplant markets and communities, but to ensure their accountability and enhance their capacity to support equitable and efficient outcomes. Conversely, market and community should be organized to promote the accountability of government to the people.
These are of course generalities, but useful ones, I think, for situating Jeff Gates's main proposal, which is that government take measures to ensure that stock ownership is more widespread, ensuring that an increasing fraction of the population enjoy the benefits and responsibilities of ownership in the productive capital of the nation. I think this is a really good idea, and now-while the stock market is booming-is a good time to begin implementing it. I do have several caveats, however.
First, I am not enthusiastic about the various ways Gates proposes to implement this policy. Policies that give tax breaks and favorable purchasing arrangements to firms that "broaden ownership" are difficult to implement without encouraging excessive influence-peddling and loophole-seeking, rendering it virtually impossible to keep government accountable. A better idea would be to implement such a policy as a part of social security reform, in which a certain fraction of workers' retirement benefits could take the form of stock ownership. If the social security reform debates cannot stand the addition of another policy ingredient, then we might envision a tax write-off for purchases of stock by the non-wealthy. Of course, this is close in essence to what 401(k) and related plans are, but it could be that simply reframing the policy in Jeffersonian language, rather than in terms of individual financial security, might resonate with taxpayers and the electorate.3
My second caveat is that Gates's policy, if successful, may improve the life of the nation and the welfare of the broad middle classes, but it does not deal with poverty, which is surely among the most serious problems we face in America. The poor need social capital (better communities), human capital (better schools and forms of training and discipline), and residential capital (home ownership), far more than they need financial capital.
Finally, I do not think widespread ownership will contribute to the solution of environmental problems, as Gates suggests. Indeed, quite the opposite may be the case, since there is some evidence that people are more forgiving of the harm caused by industry when they are owners and participators than when they view the owners as "outsiders."4 Moreover, most environmentalist policy analysts would not subscribe to the idea that environmental goals can be achieved by firms acting as "good citizens" in opposition to their financial interests. Rather, most would argue that a combination of regulatory prohibitions and financial incentives are needed (and are adequate) to do the job.
1 Samuel Bowles and Herbert Gintis, Recasting Egalitarianism: New Rules for Markets, States, and Communities, Erik Olin Wright, ed., (London: Verso, 1999). Gerald Epstein and Herbert Gintis, "Economic Policy after the Conservative Era: A Dual Agency Approach to State and Market," in Gerald Epstein and Herbert Gintis, eds., Macroeconomic Policy After the Conservative Era: Research on Investment Savings and Finance (Cambridge: Cambridge University Press, 1995).
2 Julian P. Boyd, ed., The Papers of Thomas Jefferson, Volume I: 1760-1776(Princeton: Princeton University Press, 1950), pp. 3-49.
3 For the importance of framing see Amos Tversky and Daniel Kahneman, "The Framing of Decisions and the Psychology of Choices," Science 211 (January 1981): 453-58.
4 Edward Greenberg, Workplace Democracy: The Political Effects of Participation (Ithaca: Cornell University Press, 1986).
Help fund the next generation of Black journalists, editors, and publishers.
Boston Review’s Black Voices in the Public Sphere Fellowship is designed to address the profound lack of diversity in the media by providing aspiring Black media professionals with training, mentorship, networking opportunities, and career development workshops. The program is being funded with the generous support of Derek Schrier, chair of Boston Review’s board of advisors, the Ford Foundation, and the Carnegie Corporation of New York, but we still have $50,000 left to raise to fully fund the fellowship for the next two years. To help reach that goal, if you make a tax-deductible donation to our fellowship fund through August 31 it will be matched 1:1, up to $25,000—so please act now to double your impact. To learn more about the program and our 2021-2022 fellows, click here.