It was an improbable experiment that took place in 1776 starting in Philadelphia with the signing of the Declaration of Independence. Seldom, if ever, had there been a nation-building endeavor organized on such uncommon denominators. The steadfast incorporators had declared liberty, and were determined to experience the fullness of freedom. But in reality they could scarcely even comprehend the world-altering power they were holding in their hands.
They had dreamed that they would know enough freedom to be able to experience the new and enticing system of free enterprise. But they discovered that it was in the dedicated pursuit of free enterprise that they found the fullness of freedom. It was an unintended consequence to find that the most precious thing provided by a free enterprise economy was not just the abundance of material wealth, but freedom itself.
The incorporators were bent on preserving their newly acquired liberty, improving the well-being of the new nation, and guaranteeing the wise use of their resources. They knew that their only hope was through the understanding and preservation of not only their coveted culture, but also through their development of a stable economy.
The historical serendipity of the 1776 experiment was in the fact that not only was it the year of the signing of the Declaration of Independence in Philadelphia, but 1776 was also the year of the publishing of the Scottish economist Adam Smith’s book, An Inquiry Into The Nature and Causes of the Wealth of Nations. The book was a compilation of Adam Smith’s observations as he traveled and sought the answer to what causes one nation to be rich and another nation to be poor.
Adam Smith equated wealth with income and the ability to generate income. His findings showed that a nation that can generate high levels of income is wealthy, and one that is capable only of low levels of income is poor. What is it that allows a nation to create a high level of income? What is it that makes a nation wealthy? In his book he simply recorded his observations. He commented then on such unique observations as division of labor, specialization, incentives, levels of taxation, freedom of cultural and economic choice, and the opportunity to pursue the objectives and directions that are of most interest to each individual.
The incorporators of the 1776 American experiment had been greatly influenced by the observations of Adam Smith. His insights fit snugly with their ideals of independence, self-reliance, and limited government that was responsible to the people rather than the people being enslaved by the government. But what neither Adam Smith nor the young American leaders comprehended was what would be the history-making results, when for the first time those ideals could be worked out in real life, in a situation where it was possible for free enterprise to not just be haltingly tolerated, but encouraged to flourish. Since a national economic system of free enterprise had never really been tried in such laissez-faire settings, no one could fully predict the potency of the economic outcome.
The leaders of the new nation had a deep respect for the rule of law, and realized the unique necessity for a limited government to fully enforce the powers of the law. One of the basic concepts of free enterprise is that the individual citizen has the right to hold and own private property. With that goes the right to exclusively make use of the property or to transfer it to another individual of one’s choice. People are free to make voluntary agreements with each other regarding their private property or personal labor. Contracts, therefore, are vital to the enterprise system.
Contracts and agreements, however, are meaningless unless they are enforced. Free enterprise could not exist without a legal entity to hold contract makers to their agreements. So, without a viable government to enforce agreements there could be no contracts, and without contracts there could be no free enterprise.
In addition, property rights, including intellectual property through copyrights, patents, or trademarks, work to facilitate those transfers and exchanges within the system. Because of the long-term protection of the rights, people are encouraged to write more books and music. The title to a piece of farm equipment, or an indentured deed to a plot of ground, assures the buyer that the seller is the legitimate owner. The right of property owners to designate who will receive their property when they die helps sustain the confidence in those property rights. Those are all subtle benefits of the free enterprise system. Those benefits were not necessarily designed and plugged into the free enterprise system before it was formalized.
On the consumer side of the equation, free enterprise ensures purchasers they can buy the goods and services that best satisfy their wants and agree with their budgets. And workers are free to try to enter any line of work for which they are qualified. All of those benefits came as unintended consequences of the pursuit of freedom of choice.
Next Week: Better-Off Conclusion
(Research ideas from Dr. Jackson’s new writings project on Cultural Economics)
© Dr. James W. Jackson
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