The year 1776 was pivotal in human history. Two social experiments were set into motion in that year that carried with them the hopes and dreams of much of the civilized world. In the first, America declared its independence from Great Britain and founded a new nation based on the fundamental principle that all citizens are inherently equal. In the second, the concept of free markets was set loose so that businesses and nations could engage in domestic and international trade while being guided only by the “invisible hand” of competition created when the forces of supply and demand converged.
The first experiment followed 700 years of tyrannical domination by church/state alliances, beginning with the Catholic Church’s control over most of Europe and extending into the Protestant Reformation. The second experiment was a novel approach to wealth creation. The time was ripe for both ideas. Until the 10th century Europe had been the home of slavery marked by little economic development. It transformed into a feudal serfdom in the Medieval Period when economic activity increased with the formation of hierarchies of monarchs, lords, and vassals. That period was replaced by a mercantilist system in which more wealth was created when merchants exported goods that represented the labors of the many. Under each of these systems nearly all the wealth that was created, however, flowed to the wealthy and to the ruling few. Free markets were conceived as a potential boost to economic expansion based on greater worker productivity, and from greater efficiencies in how goods could be produced and distributed with the ultimate objective of creating an abundance of wealth that would enrich the lives of everyone.
Both visionary ideas were directed toward the same outcome. That outcome was “freedom.” As a concept it had two distinct components: First, it meant freedom from the tyranny imposed on the citizenry by the rulers of government. That part was clear. But it also meant the right of the individual to pursue his dreams without undue interference from others. Both ideas were radical departures from the past. They were conditioned on equality under law, and the right to a sufficient portion of the national wealth so that individuals had the means to seek “life, liberty, and the pursuit of happiness” stated so eloquently in our Declaration of Independence.
It is now 235 years later. What have we done with those ideas? What is the “state of the vision” that arose from the pledges taken by our Founding Fathers? Do we measure up to the lofty goals set for us by those patriots who pledged to each other their “lives, their fortunes, and their sacred honor?” Have free markets solved the riddle of how to equitably produce and distribute wealth so that we are able to pursue our dreams? And to what extent have these ideals elevated us with equality and dignity as we each have sought out our own destinies? This essay seeks to summarize our progress as well as our failures, and to shed light on whether we are still on course to a society that truly dignifies the individual while seeking justice for all.
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America’s independence was more than just a break from an overbearing monarchy. It was also a new beginning fashioned by men of vision, and based on untried ideas. The leaders of the day came together and insisted that government’s principle role was to protect the individual’s rights so each might follow his or her dreams. The time frame was during that period historians have called the “Enlightenment,” clearly implying an emergence from the Dark Ages. And the foundational changes they sought would replace enslavement of thought and actions with freedom to think and to act according to one’s inner convictions. The framers envisioned a time and place in which we all might live together while respecting each other’s rights, free from a tyrannical government, but also free to develop our talents and to live our lives according to our own desires. They sought more than freedom from the state. It was time to mold the just society. It was to that end the 56 signers of the Declaration of Independence made their most solemn pledges.
Let’s first clarify the conditions that prevailed in the years prior to 1776. It’s important that we understand the conditions the founders pledged to move away from, as well as the new society that wanted to establish and move into.
The Birth of Freedom in America
While it is convenient for some to assert that America was founded on Christianity, the “Judeo-Christian ethic,” or the Bible, such assertions are nevertheless false. To be sure each of those concepts, doctrines, or institutions played a role in our foundation. But many of the key figures were Deists, not Christians; very few were Jewish, and many were not religious in any formal sense at all. Thomas Jefferson, James Madison, George Washington, John Adams, and Thomas Paine had no religious affiliation. These learned men shied away from formal religions, and drew upon the ideas of government from other learned men such as Charles de Secondat, baron of Montesquieu, as outlined in two of his works entitled the Spirit of the Laws and Persian Letters; and from the moral philosophy of John Locke, in particular from his contributions to republicanism, liberal theory, and to religious diversity. Many also had suffered from first hand experiences while under enslavement in Europe when church and state were combined. Indeed there is nothing in our founding documents that embrace religion in any form. On the contrary, the Declaration of Independence and the Constitution distinguish religion from all other pursuits while declaring that government must remain neutral on that subject. Moreover, the Treaty of Tripoli, ratified unanimously by the U.S. Senate on June 7, 1797, and signed into law by President John Adams on June 10, 1797, Congress formally denied that we are in any sense a Christian nation. Article 11 of that treaty reads as follows:
As the government of the United States of America is not in any sense founded on the Christian Religion,-as it has in itself no character of enmity against the laws, religion or tranquility of Musselmen,-and as the said States never have entered into any war or act of hostility against any Mehomitan nation, it is declared by the parties that no pretext arising from religious opinions shall ever produce an interruption of the harmony existing between the two countries.
It’s important to keep in mind the idea that one of our founding freedoms included the right to be free from having a religion imposed on us, in spite of the efforts of a vocal minority today to rewrite history and make one or more religions central to our founding principles. Freedom of religion, then as now, gives no preference to any religion, nor does it make freedom from an imposed religion a secondary or lesser right among our rights. Our Founding Fathers were fearful of organized religion especially when it becomes intertwined with and part of government.
Six months before the Declaration of Independence was agreed to, another historic document was printed and went into circulation. It carried the uncommon title “Common Sense.” It was written by the Englishman, Thomas Paine. His ideas and his courage were so powerful they scarcely can be summarized here without engaging in puffery. But here is a short narrative that I hope provides a glimpse of the mind and heart of this uncommon patriot:
Paine was an unusual character. He was a free spirit who said what he meant, and meant what he said, even when others disapproved. Throughout most of his life, his writings inspired passion, but they also brought him great criticism. He communicated the ideas of the Revolution to common farmers as easily as he did to intellectuals, creating prose that stirred the hearts and souls of the citizens as the idea of freedom was taking root. He had a grand vision for a free and just society: He was staunchly anti-slavery, and he was one of the first to advocate a world peace organization and social security for the poor and elderly. But his “radical” views on religion would eventually bring about his downfall. When he died, only a handful of people bothered to attend his funeral.
Although he is best remembered as the author of Common Sense, he also wrote several other compositions that brought him both praise and censure. These works included Crisis, the Rights of Man, and the Age of Reason. For the Rights of Man he was condemned to be hanged in Great Britain. While in France he was imprisoned for not endorsing the execution of Louis XVI. He barely escaped the guillotine because of it. He was spared from death only by the plea of James Monroe. While still in prison he penned the Age of Reason. He returned to America at the invitation of Thomas Jefferson only to find his contributions to the American Revolution had been all but erased because of his negative views of organized religion. Here are a few of his words that summarize his views on this subject that brought about his downfall:
The study of theology, as it stands in the Christian churches, is the study of nothing; it is founded on nothing; it rests on no principles; it proceeds by no authority; it has no data; it can demonstrate nothing; and it admits of no conclusion…All national institutions of churches, whether Jewish, Christian, or Turkish, appear to me no other than human inventions, set up to terrify and enslave mankind, and monopolize power and profit.
In spite of his views on organized religion, Paine’s role in our early history looms larger with each reading of his life. Few men have been able to inspire with the skill and clarity of Thomas Paine. George Washington was moved by his words. To inspire his men, Washington is said to have had part of Paine’s Crisis read to them on almost a daily basis:
These are the times that try men's souls: The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as freedom should not be highly rated.
The Birth of Free Enterprise, 1776
Across the Atlantic the Scotsman, Adam Smith, was busy putting the finishing touches on his treatise entitled An Inquiry into the Nature and Causes of the Wealth of Nations. This work, abbreviated the Wealth of Nations, was soon to be heralded as his magnum opus and the first modern work of economics. It is probably the most cited and least read of all the major economic compilations.
Smith was an opponent of mercantilism, an economic system based on the belief that wealth was the essence of power, that trade with others ought to be essentially one-way, and that imports should be limited to raw materials. Mercantilism was best summed up by the Austrian scholar Philipp Wilhelm von Hornick in these nine points:
- That every inch of a country's soil be utilized for agriculture, mining or manufacturing.
- That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
- That a large, working population be encouraged.
- That all exports of gold and silver be prohibited and all domestic money be kept in circulation.
- That all imports of foreign goods be discouraged as much as possible.
- That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
- That as much as possible, imports be confined to raw materials that can be finished [in the home country].
- That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver.
- That no importation be allowed if such goods are sufficiently and suitably supplied at home.
Merchants benefited greatly under these constraints from the enforced monopolies, from bans on foreign competition, and from the poverty of the workers. Governments benefited from the high tariffs and payments from the merchants. Almost all mercantilist writers were merchants or government officials.
It is quite easy to see that mercantilism was a means to wealth creation of the few, by the few, and for the few. There was simply little in it for the worker or for the rest of society. But it took someone of very high intelligence, with a sharply defined vision, and the knowledge and skills to articulate a new pathway to a just society that was a clear break from the past. Adam Smith was that man.
Smith was a colleague and close friend of David Hume, a fellow Scotsman, an intellectual and philosopher of the highest order. Indeed, Hume was Smith’s intellectual mentor. The two collaborated until Hume’s death. Among their similarities were their deep respect for honesty, clarity, and a search for truth.
Smith was interested in many subjects including religion, history, politics, philosophy, and economics. He began his career teaching logic. His economic ideas were extensive, but others have nevertheless summarized them well. In his treatise he argued that:
- the fundamental role of exports was to pay for imports.
- the end purpose of economic activity is consumption.
- productivity of labor was the fundamental source of a nation’s wealth.
- wealth should be measured in per capita terms.
- the taxation system should be progressive.
- wars that are financed by debt will have negative economic consequences.
- protectionist tariffs and precious metal reserves should be avoided.
He did not argue for a laissez-faire economy, rather that government had a role in creating and running those enterprises that private businesses could not, e.g., raise and organize armies, create transportation systems, and build educational institutions.
There is a tendency among some political practitioners today to assume that Adam Smith’s ideas remain the alpha and the omega of economic thought, that our economic system should be structured on Smith’s ideas alone, and it should remain true to them forever. But if history is anything, it is a progression of thoughts, and events, and refinements. No thoughtful person would dare to accept Smith’s ideas as static truths to be adhered to for all time. And, indeed, his ideas have been critiqued and modified in the past 75 years or so to accommodate the needs of the times based on new experiences.
Let’s consider the structure and functioning of our economic system today, and the extent to which it does, or does not, adhere to Adam Smith’s ideas stated in 1776. In particular, we will seek to answer if free enterprise is working to elevate the individual and supply him with the wherewithal to pursue life, liberty, and happiness.
Our Economic Results, c. 2011
The best way to assess the effectiveness of a country’s economic system is to look at the national output, the per capita output, and the distribution of that output. Secondarily, we need to look at how well the children, the aged, and the disadvantaged are cared for relative to the abilities of all others to do so. All of this must be couched in terms of a competitive society where results will reflect some combination of effort, abilities, skills, laws, opportunity, trends, likes and dislikes, and chance factors.
One characteristic of people when interacting together is the 20/80 rule (or the 80/20 rule). This unstated rule sums up much of life. It goes like this: 20 percent of us are good at sports, while 80 percent are not. 20 percent can sing while 80 percent cannot. Another 20 percent are reasonably good looking, while 80 percent are not. 20 percent can do moderately difficult math problems, while 80 percent cannot. The list goes on and on. Fortunately for most of us, it’s not the same 20 percent every time!
You likely can think of other areas in which the 80/20 rule does, or does not fit, but I believe it’s still a good rule of thumb. Here are a few more observations of that rule at work: On the job, 20 percent of workers do 80 percent of the work, 20 percent account for 80 percent of the profits. If all this is true , it would suggest that 20 percent deserve 80 percent of the economic results. It would also seem to be an argument in favor of unequal results based on abilities and productivity. But is it a convincing argument?
Clearly, there are other “man-made” factors at work that virtually guarantee some will ascend to the top 20 percent portion of the wealth curve with few or limited abilities. The inheritance laws make that possible. Similarly, in the world of business there are “old boy networks” that operate unofficially to assure that persons from particular families, or from the right schools, or with the right connections succeed ahead of others. There are other categories of excellence that are invented and nurtured via mass media propaganda techniques that assure the success of those in selected sports, or in the entertainment business. For example, my powers of logic are unable to put any credence at all into the widely held beliefs that the ability to hit, kick, throw, or slam dunk a ball is a good and sufficient reason for those who excel at those abilities to be rewarded with multi-millions of dollars of income. What contribution to American life do golfers, or ball players make that would warrant such an outcome? And, of course, the same question can be posed for many CEOs. Surely, there are tens of thousands of others who are equally qualified to fill the same positions who would be willing to do so for much less money. And in the world of entertainment the difference between a really good singer and one with great mass appeal is very slight indeed. Yet many really good singers can be found everywhere with little or no compensation at all, while those with “trendy” appeal find enormous financial success.
Let’s try to understand these factors in the context of real income and wealth data.
On both the goals of equality of individuals and equitable economic outcomes, we are still a “work in progress.” Our GDP is the highest of any nation, amounting to about 25 percent of the world’s total, while our GDP per capita ranks only 12th best. Yet the distribution of our income and wealth are among the world’s worst. Adam Smith had nothing to say about the distribution of wealth. But he extended the narrative in his time and circumstances to include per capita GDP.
When the total incomes are summed and divided by the total number of earners in America we find the average income to be about $80,000. But the typical income is closer to $40,000. That means incomes are skewed quite severely such that a small number receive very large incomes and a very large number receive very small incomes. More than 45 million live in poverty, and have no health insurance, and no homes, and must bear the brunt of many other social ills.
Clearly, there are many factors operative in today’s economic environment that were not foreseen by Adam Smith, that the “invisible hand” cannot correct, and that we, collectively, have not been able to control. Among the 23 largest industrialized countries, we rank at or near the bottom in many social issues that are the consequence of the very wide gap between the “haves” and the “have nots.” Among them are teen pregnancies, imprisonment rates, violence, illegal drug use, obesity rates, illiteracy rates, suicides, life expectancies, and social mobility.
As we enter 2011 the economy is rebounding from a devastating recession. Many trillions of dollars of wealth evaporated in the previous 5 years as the dollar fell, the stock markets crashed, the housing market crashed, a bubble in oil prices caused fuel prices to balloon, and trillions of dollars in collateralized mortgage obligations proved to be worthless. But here is the most important factor that tells us more about freedom and justice in America than any other:
The bottom 50 percent of Americans have no net worth (wealth) at all, while the top 20 percent own 85 percent of all wealth.
And what is perhaps worse, this gap is getting wider and wider with each passing day.
Our State of Freedom, c. 2011
The state of personal freedom is a lot more difficult to measure. Recall that freedom has two parts: The first part is freedom from a tyrannical government, while the second part is the freedom to pursue life, liberty, and happiness. The two freedoms are inseparable. How can personal freedom flourish in the absence of tyranny without the means by which we each can seek personal happiness? Indeed, freedom for some and its denial to others is the result of the distribution of wealth that is skewed so severely in favor of the wealthy. To fully understand how the two issues are connected, we must set slogans and platitudes aside and deal with facts and careful analysis.
To begin, we must first consider the concept of “equal opportunity.” Not all men are driven to maximize their personal wealth, nor even to seek out a comfortable lifestyle. Others are not motivated to pursue productivity as the ultimate good, while still others have neither the abilities nor the means to do so. What obligations do those in a free enterprise economy have to them? Clearly, neither the United States nor any other country has the obligation to assure “equality of results.” That would encourage lifestyles of laziness with the energetic and the ambitious paying the bills for the lazy. Many have argued that we owe the poor only “equality of opportunity.”
But equality of opportunity must mean more than “open admissions” university policies, for example, in particular when the fare for admission is beyond the ability to pay by those who have ample ability to learn. We cannot remove all the shackles of poverty, but we can remove those that rely on wealth. We do not need to redistribute wealth, rather, we need only to assure that everyone has an equal right to develop his skills and to pursue his dreams. To that end we need heroes, those indomitable spirits with moral courage who will not be denied.
Good heroes, however, too often become martyrs. Whenever someone with exemplary moral courage rises up, another person without it kills him or her. From Socrates, to Jesus, to Thomas More, to Joan of Arc, to Lincoln, to Gandhi, to Martin Luther King, Jr., a moral weakling has found a way to murder those he cannot emulate. Perhaps this is the price we must pay on the road to moral enlightenment.
One of my favorites among the survivors is Thomas Paine. He could never have been an effective leader such as George Washington or Abraham Lincoln. Both men were imposing figures. Washington was a respected commander who was decisive and courageous; while Lincoln was tall, compassionate, with a command of language and a delivery style that set him apart from others. Paine lacked all those attributes. He also lacked wealth, but he rejected it as a mark of superficiality. He was frail and unreliable as an employee. He was fired from several posts in England and in America. He set sail for America on the recommendation of Benjamin Franklin. When he arrived, he was so sick from the water that he was immediately taken for medical care where he remained for the next 6 weeks.
But what he lacked in stature, health, or wealth, he made up for with a sharp mind and a determined spirit. He was impatient, the sign of someone with a sense of urgency in his need to fulfill a mission. His analytical mind and his command of the written word were unsurpassed in eloquence or content by virtually all who wrote during his lifetime. He inspired Washington and Napoleon with the Rights of Man, and many historians credit him with inspiring both the American and French revolutions. By the 1790s, after publication of the Age of Reason, he was imprisoned and nearly executed in France. James Monroe came to his defense and secured his release. Ultimately, he lost the admiration of his friends and his countrymen for his condemnation of religion. It is worthwhile to print his beliefs on this subject that served to separate him from nearly all of humanity: My reading of his words convinces me that he was convicted in the court of public opinion by prejudiced minds. Indeed, his words reflect only a careful, thoughtful person who was guided by his conscience to live according to a very high calling:
I do not believe in the creed professed by the Jewish Church, by the Roman Church, by the Greek Church, by the Turkish Church, by the Protestant Church, nor by any church that I know of. My own mind is my own church. All national institutions of churches, whether Jewish, Christian or Turkish, appear to me no other than human inventions, set up to terrify and enslave mankind, and monopolize power and profit. I do not mean by this declaration to condemn those who believe otherwise; they have the same right to their belief as I have to mine. But it is necessary to the happiness of man that he be mentally faithful to himself. Infidelity does not consist in believing, or in disbelieving; it consists in professing to believe what he does not believe.
His funeral cortege consisted of two black men walking behind a simple carriage. Thus the man regarded as one of the Founding Fathers by his adopted country, who inspired two of the greatest revolutions in human history, who was befriended by Washington, Jefferson, Franklin, Monroe, and Napoleon, ended life on earth in poverty with the simple acknowledgement of two unknown men walking in silent tribute to the one man who had had the courage to speak for them.
Whence comes this thing called moral courage? We know it when we see it, yet very few seem able to embrace it as their own. Those who have it are resolute in their actions, unwavering in their convictions, and do not despair when desperation engulfs others or the moment. Perhaps it requires an epiphany, a sudden revelation when the truth of the universe is made known to those few who are forever changed by it.
On the issue of wealth, any assessment of economic progress must come to grips with this axiom: Economic wealth is not the sole source of human wealth. Natural endowments are valued by most of us with greater conviction than are a house or a bank account. We can even take comfort in the wisdom of this observation:
The rich man is not the one with the most, but the one who needs the least.
In Summary. Jefferson’s words about life, liberty, and the pursuit of happiness remain as inspiring today as they did 235 years ago when he wrote them. They promise nothing. They merely restate with eloquent simplicity that which we cherish in our hearts. They neither threaten nor do they command. But like an inner voice, they guide our actions with a certainty that is self-evident.
Freedom does not come with guarantees, nor should it. And we may never achieve at our potential or realize our dreams in our life’s journey. To be free to try is enough. We need only the means to honestly make mistakes so that when we fall, as inevitably we will, we can rise up again and carry on. We each need only to share in enough of the wealth that we helped to create so that we can provide sustenance for our bodies while we seek nourishment for our minds and our souls. Ultimately, it is our free spirits, not free markets, that define the limits of our vision or when we need to make new ones; it is how we test our courage, and it helps us to expand it. When it is all over and we still come up short, at least we can say, “We did our best.” And if we can say that much, who can dare say we failed?
And so I will conclude with just this thought: America is a beautiful place. We still have all the ingredients for the just society. Still, we are a long way from our goal. If we are ever to reach it, we must never lose sight of either our founding principles, or the extent to which we are being true to them. It is that simple, and yet, that complex.
 Journal of the executive proceedings of the Senate of the United States of America, 1789-1805 WEDNESDAY, June 7, 1797. U.S. Library of Congress. http://memory.loc.gov/cgibin/query/r?ammem/hlaw.field (DOCID+.lit(ej001383)).
 Article 11, Treaty of Tripoli, signed into law on June 10, 1797,
 From U.S. History.org p. 1.
 The Age of Reason, by Thomas Paine.
 Crisis by Thomas Paine.
 Ekelund, Robert B., Jr. and Hébert, Robert F. (1997). A History of Economic Theory and Method (4th ed.). Waveland Press [Long Grove, Illinois]. pp. 40–41.
 R. Wilkinson & K. Pickett, The Spirit Level: Why More Equal Societies Almost Always Do Better. Penguin Books, London, 2009.
 For example, Moncure Daniel Conway, The Life of Thomas Paine, Knickerbocker Press, 1892; and Howard Fast,
Thomas Paine: The Rights of Man, Limited Editions Club, Lunenburg, Vt, 1961.
 From the Age of Reason.