By Greg Ip

Touring a young United States in 1831, Alexis de Tocqueville marveled at Americans' boundless appetite for commerce, industry and wealth.

"Nothing checks the spirit of enterprise," the 25-year-old Frenchman later recounted in "Democracy in America." As to the reason: "I have no doubt that the democratic institutions of the United States...are the cause...of the prodigious commercial activity of the inhabitants."

The 250th anniversary of the Declaration of Independence finds the U.S. the biggest and most dynamic economy in the world and among its richest. As Tocqueville intuited long ago, Americans owe much of that to the democracy the founders built.

Look closely, though, and you can detect cracks in those political foundations. The checks and balances the founders embedded in American democracy protected workers, investors and entrepreneurs from arbitrary rule. President Trump is now centralizing more economic authority in himself, and just this past week the Supreme Court provided an enormous assist.

By reminding Americans they controlled their political fates, democracy also encouraged economic self-betterment. But Americans' confidence in both democracy and capitalism has waned. Socialism has a toehold in the Democratic Party.

Economists have long known that democracy alone doesn't deliver economic growth; institutions also matter. In their book "Why Nations Fail," Nobel Prize winners Daron Acemoglu and James Robinson wrote that "extractive" institutions concentrate power in the hands of an elite who then confiscate wealth from the rest of society. This is why so many emerging countries remain poor.

Inclusive institutions both constrain and broadly distribute power. England acquired such institutions with the Glorious Revolution of 1688-89 after which the king could no longer suspend laws, raise taxes without the consent of Parliament, or arbitrarily confiscate private property.

The American colonists inherited England's institutions. Indeed their legislatures were so strong that "neither the meanest nor the most obnoxious colonist" had anything to fear from imperial authorities, Adam Smith wrote in "The Wealth of Nations," published four months before the Declaration of Independence.

"From shopkeepers, tradesmen, and attornies, they are become statesmen and legislators," Smith observed, designing a government for an empire that "seems very likely to become, one of the greatest and most formidable that ever was in the world."

The Declaration itself is largely silent on what sort of economy the U.S. should have. In drafting it, Thomas Jefferson chose not to include property as a natural right alongside life and liberty, substituting the less materialistic "pursuit of Happiness."

Economic order came through the Constitution, which established checks and balances between the branches, divided responsibility between the state and federal governments, and enumerated individual rights that government couldn't infringe. Economist Jesús Fernández-Villaverde of the University of Pennsylvania describes the Constitution as a "commitment device" through which the government assures future generations it will stand by promises made today.

The founders' early practices reinforced that commitment: George Washington's retirement after two terms set an example other presidents felt obliged to follow, Alexander Hamilton's assumption of state debts established national creditworthiness, and early Supreme Court decisions entrenched the sanctity of contracts and judicial review.

To be sure, some institutions weren't inclusive, most notoriously slavery. A significant contribution to early American economic output came from enslaved people. Black Americans and women were routinely denied the benefits of equality well into the 20th century.

Still, the country grew rapidly thanks to immigration, expanding frontiers and the entrepreneurial energy that so impressed Tocqueville. "At the London Crystal Palace exhibition of 1851...British and foreign observers were shocked and impressed not just by the advanced tools displayed by the Americans but...their apparently new method of manufacture," economic historian Robert Gordon has written. By the end of the 1800s, the U.S. had surpassed Britain as the world's dominant economic power.

The U.S. had evolved from a predominantly agrarian to an urbanized, industrial society, and its institutions needed to evolve as well. Concentrated corporate power was widely viewed as a bigger threat to liberty than despotic government. To oversee this more complex economy, reformers turned to specialized bodies of experts and — echoing the founders' instinct for diffusing power — insulated them from politics.

To end repeated banking panics, the Federal Reserve was signed into law in 1913 with a unique public-private system of governance. The Federal Trade Commission followed in 1914 to protect the economy from unfair competition and monopoly. Its decisions needed to be "impartial and well considered" and free of "partisan direction," the Senate report on the enabling law noted. So, no more than three of its five members could come from one party, and none could be fired except for cause.

The Great Depression and World War II led to a vastly expanded government presence in the economy, and a more sprawling presidency with new pressure on checks and balances. Franklin D. Roosevelt tried to fire an FTC member without cause; in 1935, the Supreme Court said no. FDR then tried to pack the Supreme Court; his own party revolted.

The U.S. has prospered for many reasons: a vast internal market, ample natural resources, a homeland unravaged by war and universal basic education. Its institutions, though, shouldn't be underestimated. The Federal Reserve made possible the depth and global reach of American financial markets and the dollar. Competition and securities laws are why those markets are viewed as mostly fair. Deep, fair markets made investment and risk-taking attractive.

Sometimes, the thicket of laws and competing power centers stunts America's ability to meet new challenges, in contrast to China which has no checks, balances or individual liberty. The solution, in the view of some, is a more energetic, less constrained presidency.

Enter Trump. Like most presidents, he doesn't care much for checks and balances. Under the Constitution, "I have the right to do whatever I want as president," he remarked during his first term.

In his second term, he has behaved as if that were true, making decisions on taxes and spending normally the purview of Congress and intruding regularly into the private economy. Courts have stopped some but not all.

Shortly after taking office, he fired the Democratic members of several independent agencies, including the FTC, effectively transforming them into executive departments. He tried to fire a Federal Reserve governor in an effort to bring monetary policy under White House control.

This past week, the Supreme Court blocked his firing of the Fed governor, citing the Fed's "unique historical status and role." But it upheld his removal of FTC commissioners, ruling independent agencies and the 1935 Supreme Court precedent violated the president's constitutionally enshrined control over the executive branch.

Why should it matter if the FTC is an independent agency or executive department? Though the president always picked the FTC's chair, he couldn't dictate its decisions, which were subject to internal debate and dissent.

When the FTC under Joe Biden-appointed Chair Lina Khan proposed vastly increasing the information required from companies seeking to merge, Republican commissioner Andrew Ferguson objected that the requirements were onerous and unlawful. The proposal was watered down and in 2024 all commissioners, including Ferguson, voted in favor.

Ferguson is now FTC chair. With no Democratic commissioners and no protection against removal, he is effectively a presidential at-will employee. (There is one other commissioner, a Republican.) Indeed, he consults regularly with Trump on major cases, The Wall Street Journal has reported.

Justice Neil Gorsuch, who voted with the majority to let the president remove commissioners, nonetheless worried about the consequences. "The power to write new regulatory crimes still exists, but now the pen ultimately rests in the President's hand," he wrote. Could a business out of favor with the president "survive a subsequent FTC rule declaring unlawful one of its longstanding trade practices?"

A dissenting Justice Sonia Sotomayor warned the ruling "creates an Executive Branch that Congress never dreamed of establishing and that it now has little hope of ever reining in."

The repercussions could outlast Trump. The Democratic Party is being pulled leftward by progressives and socialists determined to go after wealth and corporate power. Thanks to the pathway blazed by Trump, a future Democratic president will face fewer checks and balances to carrying out such an agenda.

For all these pressures, it is worth remembering the U.S. has faced such challenges repeatedly for 250 years. It has always emerged with its democratic and economic foundations stronger.

Write to Greg Ip at greg.ip@wsj.com