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Message: 15th Principle--prosperit... occurs when there is a free-market economy
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15th
Principle
The highest level of prosperity occurs
when there is a free-market economy and
a minimum of government regulations.
Principle
The highest level of prosperity occurs
when there is a free-market economy and
a minimum of government regulations.
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The Founders were fascinated with the possibility of
setting up a political and social structure based on natural
law, but what about economics? Were there natural laws for
the marketplace?
setting up a political and social structure based on natural
law, but what about economics? Were there natural laws for
the marketplace?
-
A tome of five books on the subject was published just
in the nick of time which gave them the answer. It came out
in 1776 and was called The Wealth of Nations. It was written
by a college professor in Scotland named Adam Smith.
This brilliant work is not easy reading, but it became the
watershed between mercantilism and the doctrines of
freemarket economics. It fitted into the thinking and
experiences of the Founders like a hand in a glove. Thomas
Jefferson wrote: "In political economy, I think Smith's Wealth
of Nations the best book extant." (Bergh, Writings of Thomas
Jefferson, 8:31.)
A tome of five books on the subject was published just
in the nick of time which gave them the answer. It came out
in 1776 and was called The Wealth of Nations. It was written
by a college professor in Scotland named Adam Smith.
This brilliant work is not easy reading, but it became the
watershed between mercantilism and the doctrines of
freemarket economics. It fitted into the thinking and
experiences of the Founders like a hand in a glove. Thomas
Jefferson wrote: "In political economy, I think Smith's Wealth
of Nations the best book extant." (Bergh, Writings of Thomas
Jefferson, 8:31.)
-
Therefore, the United States was the
first people to undertake the structuring of a whole national
economy on the basis of natural law and the free-market
concept described by Adam Smith. Among other things, this
formula called for the following:
1. Specialized production -- let each person or corporation
persons do what they do best.
2. Exchange of goods takes place in a free-market
environment without governmental interference in
production, prices, or wages.
3. The free market provides the needs of the people on the
basis of supply and demand, with no government
imposed monopolies.
4. Prices are regulated by competition on the basis of
supply and demand.
5. Profits are looked upon as the means by which
production of goods and services is made worthwhile.
6. Competition is looked upon as the means by which
quality is improved, quantity is increased, and prices
are reduced.
first people to undertake the structuring of a whole national
economy on the basis of natural law and the free-market
concept described by Adam Smith. Among other things, this
formula called for the following:
1. Specialized production -- let each person or corporation
persons do what they do best.
2. Exchange of goods takes place in a free-market
environment without governmental interference in
production, prices, or wages.
3. The free market provides the needs of the people on the
basis of supply and demand, with no government
imposed monopolies.
4. Prices are regulated by competition on the basis of
supply and demand.
5. Profits are looked upon as the means by which
production of goods and services is made worthwhile.
6. Competition is looked upon as the means by which
quality is improved, quantity is increased, and prices
are reduced.
-
The Four Laws of Economic Freedom
Prosperity also depends on a climate of wholesome
stimulation protected by law. Reduced to its simplest
formula, there are four laws of economic freedom which a
nation must maintain if its people are to prosper at the
maximum level. These are:
1. The Freedom to try.
2. The Freedom to buy.
3. The Freedom to sell.
4. The Freedom to fail.
By 1905 the United States had become the richest
industrial nation in the world. With only 5 percent of the
earth's continental land area and merely 6 percent of the
world's population, the American people were producing over
half of almost everything -- clothes, food, houses,
transportation, communications, even luxuries. It was a
great tribute to Adam Smith.
Prosperity also depends on a climate of wholesome
stimulation protected by law. Reduced to its simplest
formula, there are four laws of economic freedom which a
nation must maintain if its people are to prosper at the
maximum level. These are:
1. The Freedom to try.
2. The Freedom to buy.
3. The Freedom to sell.
4. The Freedom to fail.
By 1905 the United States had become the richest
industrial nation in the world. With only 5 percent of the
earth's continental land area and merely 6 percent of the
world's population, the American people were producing over
half of almost everything -- clothes, food, houses,
transportation, communications, even luxuries. It was a
great tribute to Adam Smith.
-
The Role of Government in Economics
The Founding Fathers agreed with Adam Smith that the
greatest threat to economic prosperity is the arbitrary
intervention of the government into the economic affairs of
private business and the buying public. Historically, this has
usually involved fixing prices, fixing wages, controlling
production, controlling distribution, granting monopolies, or
subsidizing certain products.
Nevertheless, there are four areas of legitimate
responsibility which properly belong to government. These
involve the policing responsibilities of government to prevent:
1. Illegal Force in the market place to compel purchase or
sale of products.
2. Fraud in misrepresenting the quality, location, or
ownership of the item being sold or bought.
3. Monopoly which eliminates competition and results in
restraint of trade.
4. Debauchery of the cultural standards and moral fiber
of society by commercial exploitation of vice --
pornography, obscenity, drugs, liquor, prostitution, or
commercial gambling.
The perspective of the Founders in the economic role of
government may be gathered from sentiments such as these
by Washington:
Let vigorous measures be adopted; not to limit the
prices of articles, for this I believe is inconsistent with
the very nature of things, and impracticable in itself, but
to punish speculators, forestallers, and extortioners, and
above all to sink the money by heavy taxes. To promote
public and private economy; encourage manufacturers,
etc. (Fitzpatrick, Writings of George Washington, 14:313.)
The Founding Fathers agreed with Adam Smith that the
greatest threat to economic prosperity is the arbitrary
intervention of the government into the economic affairs of
private business and the buying public. Historically, this has
usually involved fixing prices, fixing wages, controlling
production, controlling distribution, granting monopolies, or
subsidizing certain products.
Nevertheless, there are four areas of legitimate
responsibility which properly belong to government. These
involve the policing responsibilities of government to prevent:
1. Illegal Force in the market place to compel purchase or
sale of products.
2. Fraud in misrepresenting the quality, location, or
ownership of the item being sold or bought.
3. Monopoly which eliminates competition and results in
restraint of trade.
4. Debauchery of the cultural standards and moral fiber
of society by commercial exploitation of vice --
pornography, obscenity, drugs, liquor, prostitution, or
commercial gambling.
The perspective of the Founders in the economic role of
government may be gathered from sentiments such as these
by Washington:
Let vigorous measures be adopted; not to limit the
prices of articles, for this I believe is inconsistent with
the very nature of things, and impracticable in itself, but
to punish speculators, forestallers, and extortioners, and
above all to sink the money by heavy taxes. To promote
public and private economy; encourage manufacturers,
etc. (Fitzpatrick, Writings of George Washington, 14:313.)
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A genuine return to the Founders, however, will also involve
the completion of something which has never been done,
neither in the Founders' day nor in ours. It is the need for a
genuine monetary reform along the lines the Founders
envisioned but were never able to launch.
the completion of something which has never been done,
neither in the Founders' day nor in ours. It is the need for a
genuine monetary reform along the lines the Founders
envisioned but were never able to launch.
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One Responsibility of Government
Never Completely Fulfilled
Never Completely Fulfilled
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At the Constitutional Convention, the Founders
determined that they would make the American dollar
completely independent of any power or combination of
powers outside of the American people. They therefore gave
the exclusive power to issue and control money to the
people's representatives -- the Congress -- and forbade
anybody, even the states, to meddle with it.
Not only was Congress to be held responsible for the
issuing of money, but it was to see that its purchasing power
remained fixed. In other words, the "value" of the money was
to remain steady and reliable not only in the United States,
but also in relation to foreign money. They therefore stated in
the Constitution that Congress would have the power "To
coin money, regulate the value thereof, and of foreign coin...."
(Article I, Section 8, clause 5.)
At the Constitutional Convention, the Founders
determined that they would make the American dollar
completely independent of any power or combination of
powers outside of the American people. They therefore gave
the exclusive power to issue and control money to the
people's representatives -- the Congress -- and forbade
anybody, even the states, to meddle with it.
Not only was Congress to be held responsible for the
issuing of money, but it was to see that its purchasing power
remained fixed. In other words, the "value" of the money was
to remain steady and reliable not only in the United States,
but also in relation to foreign money. They therefore stated in
the Constitution that Congress would have the power "To
coin money, regulate the value thereof, and of foreign coin...."
(Article I, Section 8, clause 5.)
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All money was to be "coined" in precious metal. Paper
"notes" were to be "promises to pay" in gold or silver, not legal
tender as such. States were strictly forbidden to allow debts
to be paid except in terms of gold or silver (Article I, Section
10).
All money was to be "coined" in precious metal. Paper
"notes" were to be "promises to pay" in gold or silver, not legal
tender as such. States were strictly forbidden to allow debts
to be paid except in terms of gold or silver (Article I, Section
10).
-
Washington stated:
"We should avoid ... the depreciation of our
currency; but I conceive this end would be answered, as
far as might be necessary, by stipulating that all money
payments should be made in gold and silver, being the
common medium of commerce among nations."
(Fitzpatrick, Writings of George Washington, 11:217.)
"We should avoid ... the depreciation of our
currency; but I conceive this end would be answered, as
far as might be necessary, by stipulating that all money
payments should be made in gold and silver, being the
common medium of commerce among nations."
(Fitzpatrick, Writings of George Washington, 11:217.)
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The indignant protest of Thomas Jefferson can be heard
across the vista of two whole centuries:
"If the American people ever allow the banks to
control the issuance of their currency, first by inflation
and then by deflation, the banks and corporations that
will grow up around them will deprive the people of all
property until their children will wake up homeless on
the continent their fathers occupied. The issuing power
of money should be taken from the banks and restored
to Congress and the people to whom it belongs." (Quoted
in Olive Cushing Dwinell, The Story of Our Money, 2nd
ed., Forum Publishing Company, Boston, 1946], p. 84.)
across the vista of two whole centuries:
"If the American people ever allow the banks to
control the issuance of their currency, first by inflation
and then by deflation, the banks and corporations that
will grow up around them will deprive the people of all
property until their children will wake up homeless on
the continent their fathers occupied. The issuing power
of money should be taken from the banks and restored
to Congress and the people to whom it belongs." (Quoted
in Olive Cushing Dwinell, The Story of Our Money, 2nd
ed., Forum Publishing Company, Boston, 1946], p. 84.)
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Fractional Banking
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The bank was allowed to issue three or four times more
paper notes or loans than it had in assets. This is called
"fractional banking" because the bank has only a fraction of
the assets needed to back up the paper money or credit
which it has issued.
The bank was allowed to issue three or four times more
paper notes or loans than it had in assets. This is called
"fractional banking" because the bank has only a fraction of
the assets needed to back up the paper money or credit
which it has issued.
-
Once again Jefferson protested: "The banks themselves
were doing business on capitals [assets], three-fourths of
which were fictitious...." (Ford, Writings of Thomas Jefferson,
10:133.)
Once again Jefferson protested: "The banks themselves
were doing business on capitals [assets], three-fourths of
which were fictitious...." (Ford, Writings of Thomas Jefferson,
10:133.)
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Jefferson foresaw that the banks would inflate the
economy by loaning out fictitious paper money (with no
assets behind it). This would "boom" the economy. Then,
when the financiers had lured borrowers into a precarious
position, they would call for a "bust" and foreclose on the
property for which the bank had virtually furnished nothing.
At the first signs of a pending "bust," Jefferson
lamented:
Jefferson foresaw that the banks would inflate the
economy by loaning out fictitious paper money (with no
assets behind it). This would "boom" the economy. Then,
when the financiers had lured borrowers into a precarious
position, they would call for a "bust" and foreclose on the
property for which the bank had virtually furnished nothing.
At the first signs of a pending "bust," Jefferson
lamented:
-
"This fictitious capital ... is now to be lost, and to
fall on somebody; it [the bank] must take on those who
have property to meet it, and probably on the less
cautious part, who, not aware of the impending
catastrophe, have suffered themselves to contract, or to
be in debt, and must now sacrifice their property of a
value many times the amount of the debt. We have been
truly sowing the wind, and are now reaping the
whirlwind." (Ibid.)
"This fictitious capital ... is now to be lost, and to
fall on somebody; it [the bank] must take on those who
have property to meet it, and probably on the less
cautious part, who, not aware of the impending
catastrophe, have suffered themselves to contract, or to
be in debt, and must now sacrifice their property of a
value many times the amount of the debt. We have been
truly sowing the wind, and are now reaping the
whirlwind." (Ibid.)
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Amazingly, this disastrous pattern of "boom and bust"
has been repeated off and on for over 200 years without the
cause of it being corrected. A sound monetary reform
program is still begging for a hearing.
Amazingly, this disastrous pattern of "boom and bust"
has been repeated off and on for over 200 years without the
cause of it being corrected. A sound monetary reform
program is still begging for a hearing.
-
Jefferson, Jackson, and Lincoln all tried to get the
monetary program turned around so that Congress would
issue its own money and banks would be required to loan on
existing assets rather than use fictitious money based on
merely a fraction of their assets. In other words, they wanted
to get rid of the "boom and bust" cycle.
monetary program turned around so that Congress would
issue its own money and banks would be required to loan on
existing assets rather than use fictitious money based on
merely a fraction of their assets. In other words, they wanted
to get rid of the "boom and bust" cycle.
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On another occasion, Jefferson lamented:
"We are completely saddled and bridled, and ... the
bank is so firmly mounted on us that we must go where
[it] will guide." (Ibid., 9:337-38.)
"We are completely saddled and bridled, and ... the
bank is so firmly mounted on us that we must go where
[it] will guide." (Ibid., 9:337-38.)
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