The division between classical and modern liberals is often represented as paralleling the tension between liberty and equality. Where classical liberalism saw individual liberty as the driving force behind peace and prosperity, the modern variety puts more emphasis on equality. But this is a false dichotomy. The only kind of equality that is possible is also the only kind that matters: political equality.

Political equality refers to equality of rights. Before the creation of the United States, every system of government had taken for granted that some people were entitled to rule others, taking away their freedom and property whenever some allegedly “greater good” demanded it. The Founders rejected that notion. Each individual, they held, is to be regarded by the government as having the same rights to life, liberty, and the pursuit of happiness as any other individual. So long as he didn’t violate other people’s rights, he was free to set his own course and live on his own terms.

By making the government the guardian of our equal rights rather than a tool for the politically privileged to control and exploit the rest of society, the Founders transformed the state from an instrument of oppression into an instrument of liberation: it liberated the individual so that he was free to make the most of his life. (Unfortunately, they failed to fully implement that principle, above all by allowing the continued existence of slavery, which was a clash of principles that nearly tore the country apart in a civil war.)

Political equality is what made America a land of opportunity. In a world where there were no special privileges and no special obstacles, each individual was free to rise as high as his ability and ambition would take him. This political equality inevitably went hand in hand with economic inequality, as the ability and ambition of some people took them further than others. There was no contradiction in that fact. Political equality has to do with how the government treats individuals. It says that the government should treat all individuals the same — black or white, man or woman, rich or poor. But political equality says nothing about the differences that arise through the voluntary decisions of private individuals. Protecting people’s equal rights invariably leads to differences in economic condition, as some people use their freedom to create modest amounts of wealth while others reach the highest levels of financial success.

Historically, Americans haven’t cared about economic inequality. But that is starting to change. Why? Because there are very real problems in today’s economy — problems that threaten the American Dream — and alarmists have placed the blame for these problems on economic inequality. According to them, the rich are rigging the system in their favor, and the rest of us are stagnating as a result.

There are genuine barriers to opportunity today, and the deck is becoming stacked against us — but not because “the rich” are too rich and the government is doing too little to fight economic inequality. The real threat to opportunity in America is increasing political inequality.

In a land of opportunity, an individual should succeed or fail on the basis of merit, not political privilege. You deserve what you earn — no more, no less. Today, however, some people are being stopped from rising by merit, and others are securing unearned wealth through political privilege. But the real source of this problem is that we have granted the government an incredible amount of arbitrary power: to intervene in our affairs, to pick winners and losers, to put roadblocks in the way of success, to hand out wealth and other special favors to whatever pressure group can present itself as the face of “the public good.” Some of these injustices do increase economic inequality, but it isn’t the inequality that should bother us — it’s the injustices.

When a bank or auto company that made irrational decisions gets bailed out at public expense, that is an outrage. But the root of the problem isn’t their executives’ ability to influence Washington; it’s Washington’s power to dispense bailouts.

When an inner-city child is stuck in a school that doesn’t educate him, that is a tragedy. But the problem isn’t that other children get a better education; it’s that the government has created an educational system that often fails to educate — and that makes it virtually impossible for anyone but the affluent to seek out alternatives.

The same goes for countless other ways the government gives special privileges to some people at the expense of others:

  • Cronyism — whether in the form of bailouts, subsidies, government-granted monopolies, or other special favors — benefits some businesses at the expense of competitors and buyers.
  • Occupational licensing laws in fields as varied as hair-braiding and interior decorating protect incumbents from competitors by arbitrarily preventing individuals from freely entering into those fields.
  • The minimum wage raises some people’s incomes at the expense of employers and customers as well as other low-skilled workers, who are priced out of the labor market and thrown onto the unemployment rolls.
  • The welfare state openly deprives some people of their earned rewards in order to give other people rewards they haven’t earned.

We are living at a time of immense political inequality thanks to a government that has grown far beyond the strict limits defined by the Founders. Of course people will try to influence a government that has so much arbitrary power over their lives, and of course those with the best connections and deepest pockets will often be the most successful at influencing it. The question is, what created this situation — and what should we do about that?

Economic egalitarians tell us that the problem is not how much arbitrary power the government has, but whom the government uses that power to help. They say that by handing the government even more power and demanding that it use that power for the sake of “the 99 percent” rather than “the 1 percent,” everyone will be better off.

Only when the government is limited to the function of protecting our equal rights can people rise through merit rather than through government-granted privilege. The cure for people seeking special favors from the government is to create a government that has no special favors to grant.

What’s required to save the American Dream is not to wage war on economic inequality but to recommit ourselves to the ideal of political equality. We need to liberate the individual so that each of us is equally free to pursue success and happiness.