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OPINION

Replacing Property as a Source of Wealth Creation

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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One of the interesting things about our country, the independence of which the Founders declared 235 years ago today, is that we have been a property-holders' democracy.
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This is not something the Founders originally advocated. While they protested taxation by a British parliament in which they were not represented, they did not think that everyone had a right to vote. Like their British contemporaries, they thought that only those property-holders should vote. Otherwise representatives elected by the poor majority would vote to take away the property of the rich minority.

But in the early years of the republic, it became apparent that almost all white males were farmers who owned the land they farmed. As property-holders, they could be trusted with the vote.

So by the early 19th century just about all the states extended the franchise to adult white males. It would be extended in time to blacks and women, as well.

In this property-holders' democracy, elected representatives have naturally sought to facilitate the accumulation of property, as Walter Russell Mead has pointed out in his unfailingly interesting Via Media blog on the-american-interest.com.

For a century this property took the form of the farm. Government sold land cheaply and on credit, and under the Homestead Act gave it away free to those who worked it for a few years.

Government set up agricultural colleges and financed agricultural research. It regulated the rates railroads could charge farmers.

In the Great Depression, when 25 percent of Americans still lived on farms, government started subsidizing producers of certain crops. Amazingly, it hasn't stopped, although only 2 percent of Americans live on farms, though one hears that agricultural programs have been on the chopping block in various budget negotiations.

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In the 20th century, most Americans moved to cities, and the new form of property ordinary folks accumulated was their houses. Government stepped in to subsidize that property, too, in the form of low- or no-interest mortgages and tax deductions for interest payments.

For many years, these policies worked pretty well. Just as government enabled people to accumulate property in the form of farms, it enabled people to accumulate property in the form of urban and then suburban houses.

Then, as with farm programs, government went too far. Fannie Mae and Freddie Mac, with support from administrations of both parties, financed loans to uncreditworthy borrowers on the theory that, hey, you didn't really need a down payment or steady income to be able to afford a house.

The result was a housing bubble that burst and produced the weakest economy America has seen since the 1930s. Gretchen Morgenson and Joshua Rosner tell the harrowing story in their recent book, "Reckless Endangerment."

So just as the rural farm is no longer a means by which the great bulk of Americans can accumulate property, so the suburban house seems unlikely to be a wealth-accumulating investment for the next generation or two of Americans.

What, Walter Russell Mead asks, will take its place? How will most Americans continue to accumulate wealth and enable us to maintain a robust property-holders' democracy?

Finding an answer, it seems to me, must start with recognition of a change that has been occurring for decades and that has accelerated with the financial crisis and recession: The fact that Americans are less likely to work their whole careers in large organizations and more likely to work in small organizations and skip from one to another.

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We are less likely to find success and accumulate wealth as small interchangeable cogs in very large machines and more likely to do so as unique contributors to nimble and adaptive enterprises. We can no longer rely on the brand names of our employers but must seek to establish brand names of our own.

That sounds pretty vague, and one problem with a free market economy is that no one can foresee exactly how it will grow in the future. The Internet holds out many possibilities, but few seem visible initially.

But attempts to resurrect the recent past seem futile. Efforts to restore bubble housing prices seem no more effective than the efforts a century ago to maintain the farm as the focus of national life.

Our property-holders' democracy has served us well. Let's hope it leaves the way open for us to develop new forms of wealth accumulation.

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