The Choice is Simple? It Depends.
Take a look at the chart below. It shows the ten largest economies in the world by country. Tell me what these countries have in common.
That’s right. All of them, save China and, possibly Russia, have a representative form of government in which, ultimately, power is vested in the people. What else do they have in common? Right again. All of them, save China, have market based economies. Even China, which has a government in which power is ultimately vested in the state, is trending toward a market economy.
So what’s a market economy? It’s one in which decisions regarding investment, production, and distribution are based on supply and demand and the prices of goods and services are determined in a free price system. Individuals have ownership of enterprises, but governments retain a degree of economic planning and state-directed activity.
It’s really not surprising that systems of government in which power resides in the people favor an economic system in which value creation resides in the people, and, ultimately, the people decide the distribution of wealth created by the economic system. The United States, in addition to both a representative form of government and a market economy, has a two party system. At its foundation one of the most important functions of each party is the espousal of an ideology suggesting a manner in which economic value should be distributed. The graphic below depicts, in a simplistic way, the symbiotic relationship between government and economy in our two party system.
The Republican Party traces its roots to 1854 when it was founded in the northern states by anti-slavery activists. The 1856 Republican slogan "free labor, free land, free men” referred to Republican opposition to slave labor and belief in independent artisans and businessmen. Early on, it supported business generally, hard money, high tariffs to promote economic growth, high wages, and high profits. The party first came to power with the election of Abraham Lincoln in 1860. By the beginning of the 20th century the Republicans cemented their reputation as the party of business.
Generally, Republicans emphasize the role of free markets and individual achievement as the primary factors behind economic prosperity. They favor an economic environment in which transactions between private parties are free from taxes, government subsidies, and enforced monopolies, as well as minimal government regulations. They promote personal responsibility rather than government to determine the means by which wealth is both created and distributed.
The Democratic Party’s origins date back to colonial times when it was formed in the early 1790’s by Anti-Federalist factions that opposed the fiscal policies of Alexander Hamilton. The Great Depression of 1929 has dominated twentieth century politics. It occurred under Republican President Herbert Hoover and fostered a more intrusive role by government. The Democrats controlled the House of Representatives nearly uninterrupted from 1931 until 1995 and won most presidential elections until 1968.
Democratic candidate, Franklin Roosevelt, was elected to the presidency in 1932, and he promulgated programs to promote social welfare, labor unions, civil rights, and regulation of business. Historically, the party has favored farmers, laborers, labor unions, and religious and ethnic minorities; it has opposed unregulated business and finance, and favored progressive income taxes. Democrats believe in a free enterprise system tempered by government intervention with government playing a role in alleviating poverty and social injustice.
Fundamentally then, the choice is simple. It depends on your preferences. If you favor individual determination of wealth creation, as opposed to governmental determination of wealth distribution, you may wish to gravitate to the Republican Party. If, however, you believe that the market economy does not fairly distribute wealth, and one of the functions of government is to aid in the more equitable distribution of wealth, you may wish to gravitate to the Democratic Party.
