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  • The Founders, Free Markets, and Sound Money

    When most people think about the Founders and economics, two common myths arise. The first is that the Founders vehemently disagreed about economics and, therefore, reached no consensus on the subject. This contention is evident in Alexander Hamilton’s and Thomas Jefferson’s famous exchange about whether the American economy should consist of self-sufficient farming or a commercial empire of manufacturing. The second myth is that the Founders saw little or no role for government in the economy—that they embraced a purely laissez faire economic theory.

    Thomas G. West puts an end to these two myths with his latest First Principles Essay The Economic Principles of America’s Founders: Property Rights, Free Markets, and Sound Money. Indeed, Jefferson and Hamilton vigorously disagreed on some economic issues, but they shared common principles regarding fundamental economic policy. Second, the Founders envisioned a vital role for government in the economy—not by relying on experts to regulate in fine detail the use of property and foster mass redistribution of wealth—but to establish and maintain the basic protections of the rule of law.

    Despite spirited policy quarrels, West contends that the Founders maintained a “consensus on both principles and the main lines of economic policies and the main lines of economic policy that government should follow.” He highlights three main principles of the American Founder’s shared economic theory: private ownership, market freedom, and reliable money.

    Private ownership relies on government to define who owns what through titles of deeds, to allow the owner to use that property, and to prevent others (including the government itself) from infringing upon the property. Market freedom means that “everyone must be free to sell anything to anyone at any time at any mutually agreeable price.” To that end, governments must enforce contracts, except under certain limited exceptions, and provide means of transportation that are available to all for the purposes of exchange. Reliable money is necessary to facilitate all of these transactions.

    From these three principles of economics are derived several policy implications. For instance, government should encourage private ownership of property; should protect property from abuse by other people, foreign nations, and the government itself; and should prevent monopolies. Government also has some enumerated powers to restrict private property’s use, including promulgating local regulations for health, safety, and morals, and subjecting property to a limited degree of taxation.

    Government today has strayed from the Founders’ economic theory, and several of the Founder’s policy implications are in tension with modern practice. For instance, federal regulators, such as the Environmental Protection Agency and the Fish and Wildlife Service, severely curtail private property’s use. Large portions of western states are designated as public land. Government does not encourage private ownership of this land, because government now is “presumed to know best how property is to be used.”  The Founders’ understanding of government as protecting the people’s rights and their personal property has been supplanted with a government that confiscates or redistributes private property.

    Despite ever encroaching government regulations, market freedom remains and modern statists have been unable to erase the American spirit of economic enterprise.  As we see from the Founding generation, though, agreement on the basic tenants of economic theory does not preclude healthy, vigorous debate about particular policies. Fortunately, it looks like that debate may be moving is the direction of economic liberty.

    Posted in Ongoing Priorities [slideshow_deploy]

    12 Responses to The Founders, Free Markets, and Sound Money

    1. Billie says:

      Gosh, free markets play a huge role in freedom! The exact freedom today's government is taking away! Get these impostors out of the leadership roles in America. This government doesn't have the strength to their actual duties, so they continue to grow government for coercion and confusion sake. America and her people will regain the strength taken away by these weak, authoritative government impostors before or after these weak, authoritative government impostors are removed.

    2. Shane Coley, Winder says:

      This article makes claims that are untrue. I'll note some examples.

      Hamilton and Jefferson vehemently disagreed about economic principle and policy. Hamilton advanced three legislative items from his post in the treasury. Payment of the national war debt, assumption of the state war debt and formation of the First Bank of the US. Hamilton's stated objective was to confuse the people and corrupt the legislature. Jefferson vigorously fought against two of these operations, and upon first arriving from France, was unwittingly made a party to the third, which he later realized and regretted.

      It is not the government's job to "provide means of transportation." This is the "Internal Improvements" plank of the early "progressives", including Clay and Lincoln. Government always wastes scarce resources, making us poorer than we would otherwise be.

      It is not the government's job to prevent monopolies. Monopolies only exist as the product of favored business license, regulation and similar government interventions in the market. Regulation is cheaper than competition to large corporations. On the free market, competition will always break a monopoly.

      We do not have a free market and will not have a free market as long as there is costless money creation, other unlawful government actions which consume a portion of our production, favored business license, and other government interventions in the market.

      The proper role and prime directive of our government is to defend the life, liberty and property of the individual. Just the opposite is happening. Government steals our life, liberty and property.

    3. Zoltan Varga says:

      It says in the Constitution of the United States, Section 8. The Congress shall have the POWER….…To regulate commerce with foreign Nations…

      I believe that the Congress have regulated the commerce in favor of the foreign Nations, by allowing the massive exportation of jobs and that maybe criminal.

    4. Pingback: » The Founders, Free Markets, and Sound Money

    5. Drew Page, IL says:

      Why do you suppose that so many businesses have moved to foreign countries? Could it have anything to do with union labor costs? Could it have anything to do with government taxation and regulations? Just asking?

    6. Pingback: Logos kai Apokalupsis » The Founders, Property, and Federalist #10

    7. Zoltan Varga says:

      Yes all of that, labor coast, regulations and taxes. That is a point of view of a businessman. I am not blaming the businessman; I am saying that our lawmakers and legislator failed to regulate commerce with foreign Nations to our favor.

    8. Leo McDermott, Mobil says:

      Shane, please understand that I'm not against anything you've posted, but in an attempt to play devil's advocate, if the free market allows monopolies to be broken, how do you explain super-corporation's existence in the first place? Large companies are constantly squeezing out smaller companies no matter what the product.

      For the record, I am AGAINST regulation and government involvement, I'm just looking for a counterpoint for arguments involving this very subject.

    9. Bob says:

      You write: "the Founders envisioned a vital role for government in the economy—not by relying on experts to regulate in fine detail the use of property and foster mass redistribution of wealth—but to establish and maintain the basic protections of the rule of law."

      The rule of law is an essential part of laissez-faire philosophy. Market anarchists argue that ALL things could be produced by the market, including justice. There is an important distinction between laissez-faire and market anarchism. That distinction is who provided for the rule of law and protection of poperty rights.

      Laissez-faire (government) or market anarchism (private).

      Also, monopolies can't exist in a laissez-faire system.

      Read Rothbard.

      You seem to endorse unnecessary government intervention for no apparent reason.

    10. Shane Coley, Winder says:

      Leo,

      Bob's answer is excellent.

      http://soundmoneycafe.blogspot.com/2008/11/brer-r

      http://soundmoneycafe.blogspot.com/2008/11/sound-

      I don't have the details in hand, but study and you will find that cartels don't stay together without government coercion.

      Innovation is snuffed out by high barriers to market entry. This is the purpose of certification boards. These boards regulate innovators out of the market. Again, using the force of government.

      For large or entrenched business, regulation is cheaper than competition.

      Government force is used to protect favored business. Costless money creation is a key element in the system. It provides the mechanism to purchase favors, creates unnecessary and unsustainable debt and aggregates real property in the hands of the super-corps you mention.

      The super-corps owe their existence to government force and systemic fraud.

    11. Leon Lundquist, Dura says:

      It is so much worse than that. The Fed charges 0% interest, and that competes with the Finance Industry at the very root, lending at interest, indeed attacking our Economy. The reason our Economy has failed is Markets have been set against Markets in a mutually assured destruction. It is nothing short of Economic War against America conducted by Progressives for 100 years. There is nothing free about our enterprise. "Ah hah! Our evil plan to use the Derivatives Market to destroy the American Real Estate Market worked! Now we shall use the Climate Exchange to destroy the American Energy Industry. And the Health Insurance Market, Obamacare will kill them all!" Apologies to Ian Flemming, but these Progressives are evil little midgets for real.

    12. Rock Cramer, Parker, says:

      For “free market capitalism” to work and be sustained requires the social contract envisioned by our Founders… what gave us “American Exceptionalism.” What this means for policy is that government’s role should only be to enforce the rule of law that includes demanding accountability and transparency in public companies. Only “stakeholders” are capable of policing companies. Stakeholders have no reason to be vigilant with “bailouts” in any form, regulatory illusions of risk mitigation and regulatory illusions of uncertainty mitigation. Thank you, ruling class, for SIV’s, “naked swaps” and 30 to 1 leverage ratios.

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