Systems Matter Part 5: Investigation into Free Enterprise

In the year 1776, a unique serendipity occurred that eventually affected the cultural economics of the world. The unusual occasion, however, could never have taken place had King John not signed the Magna Carta at Runnymede, England, in 1215. That proclamation of emancipation for the first time established a constitutional underpinning that the power of the king could be limited by a written document. Historically, that agreement became the cornerstone of freedom and the main line of liberty against arbitrary and unjust treatment of the citizens of a nation state. 

In 1776, Thomas Jefferson articulated the Declaration of Independence expressing the general thinking and desires of his countrymen. There would be a new nation formed upon the vision of the Magna Carta, established on the principle that every person is entitled to pursue his or her own values.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights: that among these are Life, Liberty, and the pursuit of Happiness.”(1)

The other component of that 1776 serendipity was the economic masterpiece that was published in Great Britain March 9 of that same year. Adam Smith was a brilliant and energetic professor well trained in the early concepts of economics. Smith was intrigued as he pragmatically viewed the cultures and economics of the different nations of the world. I like to think of Adam Smith as the first ever cultural economist. He was not only concerned about the charts and matrices of the discipline of economics, but was also concerned about people, jobs, human desires, motivations, factories, and systems. 

Adam Smith’s intellectual curiosity drove him to seek the answer to a fascinating cultural economic question, Why are some countries rich and other countries poor?He was willing to travel and simply observe and research and then compile and report. He did not just sit back and conjecture or speculate. He did not simply rely on the jaded propaganda of the politicians. He was not trying to figure out an economic and political scheme to control the world. 

Smith was not coming from a position, as was Karl Marx, where he felt his true calling in life was to debunk, destroy, and overturn the world as he had found it. Neither was he coming from a position like that of Vladimir Lenin, where he was driven to follow a different path. That path had led Lenin on a sick and vindictive payback scheme for the Czar’s hanging of his brother for the attempted assassination plot. Lenin had vowed to totally destroy, through a Marxist-style uprising, every vestige of Russia’s culture and economic system through total revolution. Adam Smith simply wanted to find out and report the answer as to why some countries were rich and some were poor. 

In 1776, Adam Smith’s findings were published in his book An Inquiry into the Nature and Causes of the Wealth of Nations. That book established the Scotsman, Adam Smith, as the father of modern economics. He felt that “The theory that can absorb the greatest number of facts, and persist in doing so, generation after generation, through all changes of opinion and detail, is the one that must rule all observation.”(2)

From their experiences and observations, Adam Smith and Thomas Jefferson were each aware that concentrated government power could be a great danger to the ordinary man. They saw the protection of the citizen from the tyranny of the government as a necessary and perpetual need. Adam Smith observed that “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”(3) 

Based on Smith’s observations regarding the role of government in the affairs of a nation, he concluded that it was “first, the duty of protecting the society from the violence and invasion of other independent societies; second, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, third, the duty to erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain: because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to the great society.”(4) 

So, in the nations that were viewed as better off, the functions of the governments were intentionally more restricted to protecting the civilians from enemies from without, protecting the civilians from each other from within, and establishing and maintaining certain public works that could not be offered by limited individuals. 

Other principles that emerged from Smith’s observations and recorded in his book were:

  • The basic assumption that the prime psychological drive in man as an economic being is the drive of self-interest
  • He assumes the existence of a natural order in the universe which makes all the individual strivings for self-interest add up to the social good
  • The best program is to leave the economic process severely alone (non-intervention)

One more helpful insight that is gleaned from Smith’s report in the Wealth of Nationsis that his definition of real wealth is the annual produce of the land and labor of the society. In other words, he sees production, or the ability to produce income, or theper capita income of a nation, as the determination of the true wealth of that nation. A nation that can produce high levels of income is wealthy. One that is capable of only low levels of income is poor. 

But what is it that allows a nation to create a high level of income? Smith declares that the answer to that question is a simple one. The key to a wealthy nation is a productive nation. A productive nation is based on an economic system of individual freedom. The key lies in a system of free enterprise

Indeed, the serendipity that came together in the year 1776 initiated a glorious experiment in economic and cultural freedom that has expanded the hopes, dreams, and expectations of the pragmatic and spiritual world of culture and economics. What now should we do with this system . . . with this dream? 

Next Week: Systems Matter: Part 6: A Productive Nation

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

© Dr. James W. Jackson   

Permissions granted by Winston-Crown Publishing House