Today, we celebrate the 250th anniversary of the Declaration of Independence, marking the creation of the United States of America. Whether you call this nation the United States, USA, or America (which always seemed a bit unfair to all the other nations in North and South America), it has grown from a group of British colonies into a global superpower. Many factors contributed to this rise, including but not limited to remarkable geographic luck, amazingly capable and visionary founders, and a driving ambition that exemplified “hustle culture” long before that term ever emerged. But today, I want to focus on the critical and often uncomfortable tension between the two ideological pillars of the USA: Democracy and Capitalism.

Both democracy and capitalism have been integral to the USA from its founding. History tends to focus on the role of democracy, and for good reason. 250 years ago, all major nations were monarchies or oligarchies. No large-scale democracy had ever lasted to that point. The success of the USA helped inspire other nations to adopt democratic government (though it should be noted that even today, the majority of the world’s population does not live under democratic government). The national anthem of the USA refers to “the land of the free”, not “the land of the rich.”

But capitalism has been just as important to the story of the USA, even though the founding fathers didn’t use the term in the Declaration of Independence. In a grand historical coincidence, Adam Smith published “The Wealth of Nations” in February of 1776, just a few months prior. And while the Declaration doesn’t discuss capitalism (the Oxford English Dictionary cites 1833 as the first time this word appeared in English print), its signers were property-owners and businessmen who had rebelled, in part, for economic as well as political reasons. In the years that would follow independence, capitalism would become more and more entwined with the nation’s self-conception, to the point that in 1953, when General Motors President Chares E. Wilson was nominated for Secretary of Defense, during Senate questioning whether as a government official he had the objectivity to make a decision that might harm the business of GM, he replied, “For years I thought what was good for our country was good for General Motors, and vice versa. The difference did not exist.”

Yet while the USA has been devoted to these two principles for 250 years, democracy and capitalism have often co-existed in a state of tension. That is not a bug, it is a feature. It is that very tension that has helped, and hopefully will continue to help guide our nation to broadly positive outcomes.

The fundamental tension between democracy and capitalism is simple. In its purest form, democracy values each person the same, while in its purest form, capitalism values each person individually. An ideal democracy treats every living person as an equal, while under capitalism, a trillionaire has vastly more wealth and economic power than a pauper.

Viewed through the lens of democracy, the economic inequality that laissez-faire capitalism produces seems unfair and morally unjust.

Viewed through the lens of capitalism, the idea that every individual has the same say in national decisions regardless of qualifications or accomplishment seems like a recipe for outcomes and mob rule.

It’s like a debate on world views between the movies Snowpiercer and Idiocracy.

But what purists on both sides miss is that capitalism and democracy have different jobs in society. Capitalism’s job is to allocate resources with the “invisible hand” of the free market to maximize wealth creation. Pure capitalism seeks to maximize wealth creation regardless of how that wealth is distributed, and the massive economic rewards of success are not indicators of some moral failure but rather evidence that financial incentives work to motivate great accomplishment.

All other things being equal, greater wealth creation makes the world better off. The past 250 years show that capitalism works. The world is vastly wealthier and our lives are vastly better because of it. But all other things are seldom equal, which is why we also need democracy.

If capitalism operates within society to allocate resources effectively, democracy operates on society itself to maintain its health and legitimacy.

In his classic book, “A Theory of Justice“, the philosopher John Rawls tried to reconcile the competing demands of liberty and equality. He lays out a simple but elegant thought experiment: Imagine that you are given the power to design the society you’re going to live in. There’s just one catch–you have to design that society and all its roles without knowing in advance which role you’ll be required to play. The Rawlsian approach appeals to me because I find it both fair and universal.

Of the various systems of government, democracy comes the closest to matching up with Rawls’ theories. Feudalism or autocracy might be appealing to those who are warlords or autocrats, but if you couldn’t know in advance whether you would be ruling or ruled, would you choose that system?

When it works, democracy requires those who wish to lead to espouse and ultimately work towards popular policies and goals. If the people make the “wrong” choice in a democracy, they can unmake and remake their bad decision in future elections.

In practice, democracy is flawed and messy. Democracy in the USA features partisan bickering, disproportionately powerful special interests, and a host of other distortions. Yet I believe it is still better than the non-democratic alternatives. Even if some billionaire or trillionaire is an aspiring plutocrat, they still have to convince people to vote for them. Or as one of my friend’s daughter’s noted sardonically, “Money is everything in politics, said President Michael Bloomberg.”

The wealthiest 1% of Americans might own 32% of the wealth, but they only control 1% of the votes. There’s no question that money can be spent to increase political power, but only indirectly, and without 100% certainty.

Democracy constrains capitalism by redistributing the wealth that capitalism creates to win popular support. But by doing so, democracy maintains the very societal legitimacy and rule of law that creates the conditions capitalism needs to create wealth.

Capitalism without democracy can generate the kind of inequality that leads to violent revolution.

Democracy without capitalism can generate the kind of poverty and economic stagnation that leads to violent revolution.

They need each other as foils; it is their uneasy balance that allows both to prosper in the long run.

It’s easy to see democracy and capitalism as diametrically opposed forces, especially since their most ardent advocates see the other side as their nemesis.

Peter Thiel wrote, “”I no longer believe that freedom and democracy are compatible”.

Meanwhile the website of the Democratic Socialists of America reads, “Capitalism is a system designed by the owning class to exploit the rest of us for their own profit. We must replace it with democratic socialism, a system where ordinary people have a real voice in our workplaces, neighborhoods, and society.”

I don’t like either of those extreme sentiments. But I take comfort from the fact that they simply reflect the underlying tension that has been there for the past 250 years.

Combining democracy and capitalism has made the USA the richest and most powerful nation in history. Some might even call it great. But that greatness depends on this country remaining dedicated to both democracy and capitalism. I hope that you take the opportunity to do your part for both of these great principles.

Happy Fourth of July!