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 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. Those benefits came as unintended consequences of the pursuit of freedom of choice.
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.
Adam Smith is a hero to me because I see him as the first cultural economist. He was the first to note the curious connection between private interests and cultural interests. Individuals and businesses seeking to advance their own self-interests and operating within the structure of a highly competitive market system would miraculously promote the cultural best interest as well as the economic best interest at the same time. It began to prove out that as the individuals and businesses were allowed the freedom to choose their own options as to what they felt would be best for them, lo and behold, all the people of the culture began ending up better off. That was definitely an unintended consequence, but a welcomed and marvelous happening.
Adam Smith explained this simultaneous phenomenon as being guided by aninvisible hand. We even see it in action today as a business seeks to build a new and improved product to increase its profits. Those enhanced products like computer applications, smart phones, and industrial robots increase the culture’s well-being. Those businesses use the least costly combination of natural and human resources because in doing so it is in their own best interests. To do otherwise would put their business in jeopardy. But the company’s using scarce resources in the least costly way benefits the culture as a whole and frees up precious resources to produce something else that the culture wants.
Self- interest is different than greed. The freedom to pursue self- interest becomes the greatest method known to mankind to manage the billions and billions of individual small decisions of people seeking to better employ their resources and labor in ways other people find helpful. The socialist’s government model of centralized decision making could never come even close to determining the most correct and efficient answer to the billions of everyday decisions open to individuals and cultures. Adam Smith and the leaders of the fresh, new American experiment of 1776 seemed to get an intuitive glance into the possibilities of liberty and free enterprise. And a lot of the results were admittedly unintended and only realized as the experiment unfolded over time.
But over time their intuitions and dreams began to materialize. As they were free to pursue the free enterprise model, they began to experience true freedom for themselves:
- Built- in Efficiency The new economic system encouraged the efficient use of resources and guided the new Americans into production of goods and services most wanted and needed by the citizens. They were encouraged to develop and adopt the most efficient techniques in utilizing their resources for production and consumption in the new country.
- Built- in Incentives The free enterprise economic system promoted the acquisition of new skills and trades, gave people reason to work hard and be frugal in their lifestyles, and made it profitable for them to be innovative in solving their cultural and economic challenges. By assuming calculated risks and being innovative, they began to realize higher incomes and the creation of new opportunities of employment for fellow citizens. Many times the reward for those advances translated into higher standards of living.
- Built- in Freedom The major reward for the pursuit of the free enterprise system flowing from the experiment of 1776 was the realization of personal freedom. The alternative economic systems of centralized government lacked in efficiency, incentives, and most of all freedom. The new system emboldened economic activity without coercion or undue interference, subject to the penalties and rewards built into the economic system itself.
The unintended consequences set into motion as a result of the determined pursuit of freedom of economic and cultural choice were nothing less than astounding. Nothing else compares historically with the results of the America experiment of 1776. The system thrives on freedom and liberty. The multitudes of quiet and persistent cultural and economic entrepreneurs flowing out from that experiment have absolutely altered the history of this world.
The chances of the experiment ever happening again are very slim, indeed. It will never happen again the same way, for certain. But even were the restart button ever to be pushed again in the future, there is verifiable evidence recorded in history thatonce upon a time there lived upon the face of the planet earth a people whose hearts burned within them to experience a cultural and economic phenomenon where the people were willing to pay the price of personal responsibility to cultivate with kindness, justice, and righteousness an economic and cultural system that honored liberty and freedom and personal integrity.
In the meantime, I choose to pledge my allegiance to the grand and glorious experiment of 1776, and to honor those who stood for what they believed and lived to experience the extravagant results and even the goodness of the unintended consequences.
Research ideas from Dr. Jackson's new writing project on Cultural Economics)
© Dr. James W. Jackson
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