By the end of the nineteenth century, the United States of America was producing more than half of the world’s goods, including luxury items, with less than six percent of the earth’s population. How did this young nation, in a mountain of debt after the War of Independence, become so wealthy so fast?
The Free Market
In 1776, the same year America declared her independence, a Scottish economist and philosopher named Adam Smith published “An Inquiry into the Nature and Causes of the Wealth of Nations.” This book set forth the principles of free-market economics. The Founding Fathers of the United States of America read and took to Smith’s ideas readily. Although these principles were not new, they had never before been fully implemented as a system by any nation. Understanding why the free-market economy worked for America requires a little background in the concepts of political and economic liberty.
The Right to Ownership and Control of Property
The U.S. was founded upon the concept of individual rights. Every member of society had an inherent and inalienable right to life, liberty and the ownership and control of property (sometimes referred to as the “pursuit of happiness” by the Founders).
In a free society, people choose their line of work. Everyone is an individual. Some become entrepreneurs, others prefer more stable and traditional professions, and yet others opt for physical labor or unskilled work. Many people try their hand at more than one of these groups. All are necessary for a society to be mutually beneficial and prosperous. The Founders saw the government as a means to protect fundamental rights so that an environment might be vouchsafed whereby individuals could choose for themselves and pursue happiness as they saw fit. This view also extended to the marketplace.
Freedom from Government Intervention
America’s Founding Fathers agreed with Adam Smith that all people should have the freedom to try, buy, sell, and fail. In other words, although they believed that government should protect the market against criminality (theft, fraud and the threat of force) they also held to the belief that government should not otherwise intervene with the natural forces of the market.
Thomas Jefferson said that “Agriculture, manufactures, commerce, and navigation, the four pillars of our prosperity, are the most thriving when left most free to individual enterprise.”
And Adam Smith wrote, “[Without trade restrictions] the obvious and simple system of natural liberty establishes itself of its own accord. Every man…is left perfectly free to pursue his own interest in his own way… The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.”
Free enterprise was so named because of the very fact that it was not controlled by the government or any sovereign ruler. Although the Founders recognized some limited regulation necessary (as mentioned above), they never entrusted this to the federal government.
Protection against Debauchery
Although religious and upright men, the Founders did not believe in imposing any set of personal morals or religious beliefs upon people through the use of government. Neither, on the other hand, did they believe in the libertine “anything goes” mentality. Indeed, the exploitation of vice to the detriment of the people was seen as unacceptable. Although private morality may well have been seen as a matter of individual conscience, public morality was not seen that way.
The Founders created a republican form of government and, as part of that, the majority of any community had the right to protect what they deemed to be in their best interests for the quality of life they espoused. Therefore, the community (not central government) could intervene if the business of prostitution, or any other vice, entered into their local area. This legacy still exists today, where certain cities or states in the U.S. have varying laws on such issues as gambling, alcohol, etc.
The Founders considered a moral and religious people as necessary to the fabric of society and the maintenance of a free government (and thus a free market). Debauchery threatened these ideals, they believed, because it fomented dishonesty, addiction, bad choices, idleness, and criminality. A free society, they believed, could not be maintained when religious values and morality were absent.
The Profit Motive
Among some today, profit is a dirty word. Adam Smith – as he explained in “The Wealth of Nations” – did not see self-interest (even when leaning toward greed) as a motive that would necessarily harm society (see the quotation above by Adam Smith, for example). Indeed, he saw self-interest as something that would benefit society as a whole. Control, or force, was not a motive congruous with the ideas of the American Government and its Founders, despite its preponderance in “civilized” nations of the time. The profit motive thus became the basis of the “American Dream.”
Adam Smith, like the Founders, believed in the necessity and wholesome nature of competition in the marketplace.
When a provider of a service or manufacturer of a product is dependent upon his customers for his livelihood, he treats them well and does all he can to provide a better service or product than those in a similar line of business. This has a number of beneficial effects, both to the customer as well as to society as a whole. It fosters innovation and initiative, it brings prices down, it increases efficiency and quality.
Where laws are passed that stifle competition – such as when the government establishes its own services or products – initiative, innovation and the other benefits of the free market are lost. The government-mandated service will get paid whatever service or product they offer, so they have no incentive to serve their customers well. What is more, the private business in the same line of work cannot compete with the government one (which receives its money via enforced taxation) and so private prices go up. A good example of this is the belief that private education is more costly than education in a state school. If this is so, it is because the free market has been damaged by the government monopoly. If the government eliminated its own education service, private schools’ prices would come down and quality would increase.
The Founding Fathers understood this, and it is why they sought to keep enforced monopolies and government control out of the picture wherever possible.
The Free Republic
Today we use the word “republic” to mean a country that is not ruled by a monarchy. The Founders, however, had a more specific meaning in mind when they created the American Republic. They rejected the democratic form of government (rule by the majority) and established a republican one (rule by law). This, in essence, vouchsafed individual rights. Majorities could not vote away the rights of others. The Constitution of the United States established many checks and balances, such as separation of powers and state sovereignty, to preserve the liberty of the people. One of these checks was to allow the government only to provide for the general and not the specific welfare of the people. In other words, the Founders sought to stop future governments from redistributing wealth under the pretext of compassion. Samuel Adams stated: “The utopian schemes of leveling [redistribution of wealth] and a community of goods [central ownership of the means of production and distribution] are as visionary and impracticable as those which vest all property in the Crown. [These ideas] are arbitrary, despotic, and, in our government, unconstitutional.”
The Poor and Needy
The Christian-minded Founders recognized their duty to the poor. However, they also realized that compassion, wrongly applied, could hurt and not help the recipient. Benjamin Franklin discussed this in his writings. Therein he pointed out that compassion was counterproductive when it “gives a drunk the means to increase his drunkenness”, when it “breeds debilitating dependency and weakness”, when it “blunts the desire or necessity to work for a living”, and when it “smothers the instinct to strive and excel.”
Franklin put the Founders’ views in a nutshell when he wrote: “To relieve the misfortune of our fellow creatures is concurring with the Deity; it is godlike; but, if we provide encouragement for laziness, and supports for folly, may we not be found fighting against the order of God and Nature, which perhaps has appointed want and misery as the proper punishments for, and caution against, as well as necessary consequences of, idleness and extravagance? Whenever we attempt to amend the scheme of Providence and to interfere with the government of the world, we had need be very circumspect, lest we do more harm than good.”
The Founders believed that the poor and needy could best be helped by helping them to help themselves. They believed in giving the poor a feeling of satisfaction for earning something rather than giving something to them without any achievement on their part. They wanted the poor to be able to climb the success ladder for themselves and that, where dire help was needed in an emergency, it was never prolonged to the point of becoming habitual. They also believed in a scale of responsibility – that it was, above all others, the responsibility of the individual to solve his own problems, the family, the church, and so on up through community. However, the federal government was never to be involved in public welfare.
In summary, then, America’s wealth came about through the marrying of two ideas that took hold in the American psyche between 1776 and 1787 – that of the political freedom proclaimed in the Declaration of Independence, and that of the economic freedom set forth in Adam Smith’s “The Wealth of Nations.” It was Jefferson’s hope to see this system extend to all nations:
“Instead of embarrassing commerce under piles of regulating laws, duties and prohibitions, could it be relieved from all its shackles in all parts of the world, could every country be employed in producing that which nature has best fitted it to produce, and each be free to exchange with others mutual surpluses for mutual wants, the greatest mass possible would then be produced of those things which contribute to human life and human happiness; the numbers of mankind would be increased and their condition bettered…”
This was the American Dream.
 W. Cleon Skousen, “The Making of America: The Substance and Meaning of the Constitution” (Washington D.C.: National Center for Constitutional Studies, 1985), Chapter 8, page 203.
 There was much debate as to whether “property” should be used in the Declaration of Independence. John Locke, the writings of whom were familiar to the Founders, had used the phrase “life, liberty, and property.” It is clear that the Founders equated the pursuit of happiness with the property. For example, John Adams wrote: “All men are born free and independent and have certain natural, essential, and unalienable rights, among which may be reckoned the right of enjoying and defending their lives and liberties, that of acquiring, possessing, and protecting property; in fine, that of seeking and obtaining their safety and happiness.” (as quoted in George A. Peek, Jr’s “The Political Writings of John Adams” (New York: Liberal Arts Press, 1954), pg. 96).
 Thomas Jefferson, “The Writings of Thomas Jefferson”, ed. Albert Ellery Bergh, 3:337 (1801).
 Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations”, Book IV, Chapter IX, p. 687, para. 51.
 See, for example, “The Writings of Thomas Jefferson”, ed., Paul Leicester Ford, (New York: G.P. Putnam’s Sons, 1892-99), vol. 2:99.
 “A general dissolution of principles and manners will more surely overthrow the liberties of America than the whole force of the common enemy. While the people are virtuous they can not be subdued; but when once they lose their virtue they will be ready to surrender their liberties to the first external or eternal invader.” (in a letter to James Warren, Feb. 12, 1779, “The Writings of Samuel Adams”, ed., Harry Alonzo Cushing (New York: G. P. Putman’s Sons, 1908), Vol. 4, p. 124).
 “Whereas true religion and good morals are the only solid foundations of public liberty and happiness…it is hereby earnestly recommended to the several states, to take the most effectual measures for the encouragement thereof…” (“Journals of the American Congress: From 1774 to 1788”, 10 vols. (Washington, D.C.: Way and Gideon, 1823), 3:85.
 “We have no government armed with power capable of contending with human passions unbridled by morality and religion…Our Constitution was made for only a moral and religious people. It is wholly inadequate to the government of any other.”
(John Adams, to the Officers of the First Brigade of the Third Division of the Militia of Massachusetts, 11 October 1798 as quoted in Charles Francis Adam’s “The Works of John Adams, Second President of the United States” (Boston: Little, Brown and Company, 1854). Vol. IX).
 “In general, if any branch of trade, or any division of labor, be advantageous to the public, the freer and more general the competition, it will always be the more so.” (Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations”, Book II, Chapter II, p.329, para. 106).
 “…democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property, and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would, at the same time, be perfectly equalized and assimilated in their possessions, their opinions, and their passions.” (James Madison, “The Federalist Papers”, No. 10)
 As quoted in William V. Wells’ “The Life and Public Service of Samuel Adams”, 3 vols. (Boston: Little, Brown and Company, 1865), 1:154.
 Smyth, “The Writings of Benjamin Franklin”, 10:64, 5:538, p. 123, 3:135-36, & pp. 136-37.
 Ibid., p. 135.
 “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.” (James Madison, “Annals of Congress”, House of Representatives, 3rd Congress, 1st Session, page 170 (January 1794).
 Thomas Jefferson, “Report on Foreign Commerce”, 1793. (“The Writings of Thomas Jefferson”, Memorial Edition, eds. Lipscomb and Bergh, 20 Vols. (Washington D.C., 1853-54)).