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The Heritage of Economic Liberty

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For the Founding Fathers, economic liberty was inseparable from the case for political freedom. Many of the grievances enumerated in the Declaration of Independence concern British infringements on the free movement of goods and men between the thirteen colonies and the rest of the world.

It was not a coincidence that the same year that saw the Declaration of Independence also saw the publication of Adam Smith’s Wealth of Nations. Both represented the ideas of the age. When Smith spoke of a “system of natural liberty” in which “every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interests his own way and to bring both his industry and capital into competition with those of other men,” he was expressing the economic vision of most of those who fought for freedom from British imperialism in the thirteen colonies.

Following independence, the thirteen independent states were loosely bound together by the Articles of Confederation. Many of the Founding Fathers, however, raised concerns about economic policies which the sovereign states were implementing. They had introduced various forms of economic nationalism into their relationships with not only European countries, but also among themselves.

They imposed tariffs against the goods of other states. They gave monopoly trading privileges to their respective citizens in various lines of manufacturing and commerce. They passed legal tender laws excluding or hampering the free choice in media of exchange by private individuals. They entered into trade wars with each other. Having broken free from the shackles of British mercantilism when they declared their independence in 1776, by the late 1780s the sovereign states were all practicing that against which they had fought in the war for independence.

To overcome these economic barriers, the writers of the Constitution (that replaced the Articles of Confederation in 1787) included in Article 1, Section 8, that “the Congress shall have the Power … To regulate Commerce with foreign Nations, and among the several States . . .”

For many, the meaning of “to regulate” in the Constitution was meant to prohibit economic nationalism and make the several states a single, unified free trade area. Most of the Founding Fathers were very familiar with the free trade ideas of Scotsmen like Adam Smith and David Hume and their French colleagues, the Physiocrats. They knew that these free traders were correct when they advocated the free movement of goods, men, and ideas from one part of the globe to another. Freedom and prosperity were to be linked together in one system of human liberty.

The philosophy of wide economic freedom was believed in and advocated during most of the 19th century. Said Daniel Webster, for example, in 1814: “It is the true policy of government to suffer the different pursuits of society to take their own course, and not to give excessive bounty or encouragement to one over another. This also is the true spirit of the Constitution. It has not, in my opinion, conferred on the government the power of changing the occupation of the people of different states and sections and of forcing them into other employments.”

The same view was still respectable and defended toward the end of the 19th century. President Grover Cleveland, in his 1893 inaugural address, “condemned the injustice of maintaining protection…. It perverts the patriotic sentiment of our countrymen, and tempts them to a pitiful calculation of the sordid gain to be derived from their government maintenance. It undermines the self-reliance of our people, and substitutes in its place dependence upon governmental favoritism.” It created, President Cleveland said, the spirit of governmental “paternalism.”

While the United States government never completely removed itself from the economic affairs of the people, broad economic freedom was more the rule than the exception in the last century. Why? To quote Daniel Webster once more, “The general sense of this age sets with a strong current in favor of freedom of commercial intercourse and unrestrained action.” Economic liberty, Webster argued, was “the general tide of opinion.”

In our time, the general tide of opinion in the United States has not been kind to either freedom of commercial intercourse or unrestrained individual action. The reverse has been the case. Listen to two voices from the contemporary business community.

Lee Iacocca believes that “the 1980s were a time of quick bucks, greed, and a lot of corruption…. [W]e’ve got to work and pull this country up by its bootstrap.” And Mr. Iacocca sees an important role for government in guiding us away from our “lustful and greedy” ways.

Steve Jobs, founder of Apple Computer, argues that “getting rid of General Noriega is important, but I wish the computer industry would get a tenth of the space on our national agenda that he has. We have to make these issues national priorities.” Technological achievements are still possible for America, he believes, through “government leadership.” The problem is that “the private sector [is] dancing to its short-run tune,” while government leadership can offer us the long-term vision for intelligent decision-making.

Many economists no longer share Adam Smith’s vision. Lester Thurow, dean of the Sloan School of Management at MIT, says that the Japanese “pick out an industry to conquer” and unless we (read: the governments do something to stop their invasion of America, “they” will own and control, and “we” will work and obey. Edward Ellwood, of the Harvard John F. Kennedy School of Government, insists that “We also need to make sure everybody has medical protection outside of the welfare state. Every other major industrialized country has found a way to do this. In the next ten years, we will do the same…. We ought to move toward a uniform national system of child support with payments deducted automatically by the government from the employer.”

For one hundred years, Adam Smith’s economic system of natural liberty has been under attack. The idea that men, left to their own decisions, can make better choices for themselves than a paternalistic government, and that free men interacting with each other through voluntary exchange can produce more wealth and prosperity than any form of government planning or intervention, has been denied and often ridiculed.

At the same time, the Marxist view of society has permeated the conscience of the world, including America. Great wealth and financial success bear the stigma of unscrupulous behavior and deceitful conduct. How could a person or company have accumulated so much wealth and influence in a market unless they have been dishonest and exploitive? Besides, why does anyone need so much while so many in the society still have so little?

The only solution to government regulation and redistribution of wealth in 20th-century America is an amendment to the Constitution that recognizes and guarantees a separation of the economy and the State. Only the establishment of economic freedom on a par with freedom of speech, religion and the press can assure that there will be fewer ambiguities concerning the rights of the people and their economic affairs.

But such a constitutional reform will not be possible until there occurs a change in “the general tide of opinion.” Not until people fully realize that the cherished freedoms under the Constitution are truly protected only with inviolable private ownership of all property; not until people are convinced that each man is a better judge of his own affairs than any economic planner or social engineer; not until there is a firm belief that a man has a right to that which he has honestly produced or acquired through voluntary exchange; not until it is recognized that redistribution of wealth through the political process is merely one person plundering another via the use of an elected middle man — will we be able to remove the power of Congress to regulate and intrude into peaceful and mutually beneficial economic activities of the American people.

This Fourth of July, as we wave the flag and watch the rockets’ red glare, let us also, as did the Founding Fathers, “mutually pledge to each other our Lives, our Fortunes, and our sacred Honor” to awaken in ourselves, and all those with whom we interact, a renewed faith in free men and an understanding of the peace and prosperity that can only come from unhampered free markets and free trade.

Professor Ebeling is the Ludwig von Mises Professor of Economics at Hillsdale College in Michigan and also serves as Vice-President of Academic Affairs of The Future of Freedom Foundation.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).