The Highest Level of Prosperity Occurs When There is a Free Market Economy and a Minimum of Government Regulations
This is a question the Founding Fathers had: “Are there natural laws for the marketplace?” They saw that there was a possibility of a political and social structure based on natural law, but what about the marketplace?
A book called Wealth of Nations was written about that time (1776) by a college professor in Scotland named Adam Smith.
Thomas Jefferson said about this book: “In political economy, I think Smith’s Wealth of Nations is the best book extant (surviving or in existence),” and the United States was the first country to base the whole national economy on natural law and the free market concept described by Adam Smith.
This brought in the first six things that our Founding Fathers followed:
- Specialized production – let each person or corporation of persons do what they do best.
- Exchange of goods to take place in a free market environment without governmental interference in production, prices, or wages.
- The free market provides the needs of the people on the basis of supply and demand, with no government imposed monopolies.
- Prices are regulated by competition on the basis of supply and demand.
- Profits are looked upon as the means by which production of goods and services is made worthwhile.
- Competition is looked upon as the means by which quality is improved, quantity is increased, and prices are reduced.
Perhaps I should insert here that America became wealthy not by conquering other nations and taking their wealth (like many other nations have done), but by putting the principles outlined above into practice and creating wealth.
Founding Fathers knew that prosperity would depend on proper laws to protect the economy and they came up with the four laws: the freedom to try, the freedom to buy, the freedom to sell, and the freedom to fail. It is said that in 1905 the United States had become the richest industrial nation in the world and only having 5% of the earth’s continental land area and 6% of the world’s population the American people were producing over half of almost everything: clothes, food, houses, transportation, communication, even luxuries.
It seems to me that one of the problems that we face today in the 21st century is the proper role of government, especially in the area of economics? Adam Smith knew that the greatest threat to economic prosperity would be government intervention, and that through fixing prices, wages, controlling production, controlling distribution, etc.
However, the Founding Fathers knew that there were areas of legitimate responsibilities for the government. What are they?
- Illegal force in the marketplace to compel to purchase or to sell the products.
- Fraud in misrepresenting the quality, location, or ownership of the item being sold or bought.
- Monopoly which eliminates competition and results in restraint of trade.
- Debauchery of the cultural standards and moral fiber of society by commercial exploitation of vice – pornography, obscenity, drugs, liquor, prostitution, or commercial gambling.
I look at these four things and I see how far we, in the 21st century, have drifted from the foundation of what our Founding Fathers laid down. Hebrews 2:1 comes to mind: “We must pay the most careful attention therefore to what we’ve heard so that we do not drift away.” The easiest thing in the world to do is to “drift.” In order to drift all we have to do is nothing, and, because we, the citizenry have not been vigilant – we are losing our freedoms slowly but surely.
At the turn of the 20th century we saw many prominent and influential leaders losing confidence in the system and thinking that the economic system needed some adjustments and fine-tuning and in so doing they were getting ready to throw the entire system overboard, or like we would say in the English language: “Throw the baby out with the bathwater.” It is true with any system that often there is a need for fine-tuning, but there was a new movement starting among different labor groups demanding that the government get involved in the redistribution of the wealth.
It was in the early part of the 20th century that Adam Smith was seen as being “archaic” and Karl Marx was “the new kid on the block.” It was the 1929 depression that began to separate the new age from the old. Up until Franklin Delano Roosevelt we had the checks and balances, limited government, and the inalienable rights to liberty and prosperity, but after 1933 we began to get the centralized state and the controls of industry by the government.
In the division of powers – Congress was given the responsibility for the issuing of money. In the Constitution the Founders stated that Congress would have the power “to coin money, regulate the value thereof, and of foreign coin,” and all money was “to be coined in precious metal and paper notes were to be promises to pay in gold and silver, not legal tender as such.”
However, what happened was that the issuing of money was turned over to a private consortium of bankers who set up a privately owned bank called the Bank of the United States and today we have a similar arrangement that exists under the Federal Reserve System. (A good book to read is called The Creature from Jekyll Island which talks about the creation of the Federal Reserve Bank.)
This in turn has brought in “fractional banking” which allows a bank to loan out three or four times more paper notes than it has in assets and now we have become an economy of debt instead of wealth. In seeing what was happening and in the latter part of his life Thomas Jefferson said: “We are completely saddled and bridled, and the bank is so firmly mounted on us that we must go where it will guide.”
The writer of the Hebrews challenges us: “We must pay close attention…”