(HOST) Art Woolf teaches economics at the University of Vermont and blogs at vermonttiger.com. He says that on the 4th of July, Americans celebrate more than just political freedom.
(WOOLF) This week, we celebrate Independence Day, a reminder of the birth of a nation politically independent from our former colonial masters. But our Founding Fathers recognized that the nation would need prosperity as well as independence in order to be successful.
To achieve that prosperity, the architects of the new nation relied on the economic theories of Adam Smith, the Scottish philosopher whose book, The Wealth of Nations, was published in 1776, the same year as our Declaration of Independence.
Smith persuasively argued that trade, not gold, was the measure and cause of a nation’s wealth, a revolutionary theory at the time. The way to become more prosperous, according to Smith, was to give people the economic freedom to specialize and to produce what they could do best, then give them the ability to trade with others to make themselves better off.
So, while the nation was establishing its political independence, the Founding Fathers were promoting economic interdependence as the pathway to prosperity.
The nation’s early leaders – Washington, Hamilton, Madison, and Franklin – were very familiar with Adam Smith’s book and his insights into human nature and were able to marry the concepts of political independence to economic interdependence.
How did they do it? By writing a constitution that laid out the economic functions of the central government – the power to coin money, to tax, to pay off the new nation’s debts. The Constitution also created the institutions that enabled individuals to pursue "their own interest," as Smith put it, by protecting contracts and private property rights, and by forbidding the individual states from regulating interstate commerce.
The entire country was to be treated as a giant free trade zone – a goal which Europe accomplished only in the 1990s.
Unfettered trade allowed people to specialize in what they did best – in the late 1700s New Yorkers grew wheat in the Hudson Valley, Vermonters cut and harvested timber, South Carolinians produced tobacco and rice – and Americans could trade freely with one another no matter where they lived.
The results were successful beyond belief. Americans already enjoyed one of the world’s highest standards of living in 1776 and became the wealthiest nation on the planet by the late 1800s. The political and economic success of the American experiment attracted tens of millions of immigrants from every corner of the globe as people sought the benefits of our political freedom and economic opportunity.
More than two centuries ago, the leaders of the new nation undertook the difficult task of creating the institutions that would encourage democracy and liberty. On July 4, we celebrate their success. We should also celebrate their economic accomplishments: creating an environment that encouraged people to work at what they do best, to trade with their unknown neighbors across the continent, and to enjoy an unparalleled level of prosperity.