“Political freedom and economic freedom are inseparable,” President Ronald Reagan told a crowd of students at Moscow State University in the Soviet Union in 1988.
But for much of the past 250 years, Americans have wrestled with ways to balance democratic ideals with a dynamic market economy. As the relationship between democracy and capitalism continues to be debated in the United States and around the world, scholars and policymakers are asking how these two systems shape each other.
“We’ve become very polarized in how we define capitalism—either as total state absence or as heavy state control,” said UVA Darden Business School professor Scott C. Miller, director of the Karsh Institute’s Democracy and Capitalism Lab. “I reject both extremes, and for most of our history, Americans have as well.”
We talked with Miller to find out more about the interplay between democracy and capitalism over the course of American history.
Q: Which periods best illustrate democracy and capitalism reinforcing each other and which showed more tension?
Scott Miller: I would say it’s a constant thread. There’s a temptation to impose distinct periodization.
The Puritans were very aware of two things at the same time: first, the need to generate economic prosperity, and second, the concern—framed religiously—that the love of money can be corrosive and corrupting. So, they tried to instill norms andbuild institutions that balanced those impulses.
Some eras did a better job than others. People often say the tension got out of whack in the Gilded Age, then came back into alignment during the Progressive Era or the New Deal—but I think it’s more complicated than that.
There were not clean cycles where democracy and capitalism fell out of alignment and then were neatly restored. Instead, what you see is a persistent push and pull—one that is as American as democracy and capitalism themselves.
What you see is a persistent push and pull—one that is as American as democracy and capitalism themselves.
Q: What do you make of that push and pull today?
Miller: Starting in the 1980s, there was a strong association between political libertarianism and capitalism—the idea that any state involvement moves you away from capitalism and democratic functioning.
I reject that premise. A country does not cease to be capitalist because it has universal health care. In fact, if people aren’t afraid of losing health care when they take entrepreneurial risks, they’re more likely to start businesses.
You see this in countries like Switzerland, Germany, and the Netherlands. They have universal coverage through private providers and robust regulation, which I think is a wise decision. It supports entrepreneurial ecosystems.
There’s also a misconception in American political discourse that Nordic countries are “non-capitalist” or “socialist.” Our research in fact places Nordic nations among the strongest capitalist countries. Their rigorous property rights and rule of law, robust competitive markets, dynamic banking and capital market structures, and free labor markets create a stark contrast with most of the rest of the world.
There’s a misconception that Nordic countries are “non-capitalist” or “socialist.” Our research in fact places Nordic nations among the strongest capitalist countries.
Q: How has this played out elsewhere?
Miller: If you look at cross-country data, many capitalist economies are more equal than non-capitalist systems. During the Cold War, for example, the communist Eastern Bloc was more unequal than the capitalist West.
Alexis de Tocqueville, a 19th-century political philosopher, was concerned that growing inequality could reduce social cohesion and people’s sense of stake in society. That concern is still valid. Inequality exists across systems and can be destabilizing.
But de Tocqueville didn’t see inequality as purely a product of capitalism. It is a persistent challenge in any system.
Q: So how do you view the relationship between power and money?
Miller: This concern is as old as our republic. It goes back to Alexander Hamilton and Thomas Jefferson.
Historically, people have worried about big business, big government, and big religion. Jefferson, in particular, was wary of all forms of concentrated power.
Historically, people have worried about big business, big government, and big religion. Jefferson, in particular, was wary of all forms of concentrated power.
In the Gilded Age, thinkers like Henry George and William Graham Sumner—despite being on opposite ends of the ideological spectrum—worried that plutocrats would capture political power for private gain.
The same dynamic continues today: Power tends to reinforce itself by accumulating wealth, which then generates more power.
When power concentrates, it tends to reduce competition, which is central to a functioning capitalist system.
Q: If democracy and capitalism are as closely linked as you suggest, how should we understand moments of tension?
Miller: I think the framing of “balancing democracy and capitalism” is important but can be misleading. They are mutually reinforcing. If democracy breaks down, capitalism breaks down—and vice versa.
Democracy depends on economic capacity, and capitalism depends on democratic institutions and legal protections. In the long run, I don’t think you can sustain one without the other.
The United States still ranks highly on both capitalist and democratic metrics. That said, I’m concerned that American declines in democracy metrics over recent years will soon drag down our capitalism.
As someone who is a deep believer in democracy, capitalism, and the United States, this is a real concern, and we need to fix it.