During chaotic times, as with the coronavirus pandemic, challenged elections, and other 2020 uncertainties, it’s helpful to pull back momentarily from the endless chatter and commentary—especially with so many behaving as if their opinions reflect the word of the Almighty. Instead, here in December, let’s recall some rather fundamental principles about how our world can be organized in ways that improve human wellbeing and happiness. In doing so, perhaps, we will find a compass that points to foundations for hope in 2021.
The Three Big Events
No, we won’t focus on elections, Democrats and Republicans, GDP growth, federal deficits or Fed monetary policy. Instead, I suggest we consider three profound 1776 events and how, together, they point to a better world. Each changed the course of history in ways not quite conveyed in most dusty textbooks. Better yet, in concert, each still actively shapes a bright American future, despite any inevitable roadblocks we’ll meet along the way.
The first was the publication of Adam Smith’s “An Inquiry into the Nature and Causes of the Wealth of Nations.” Smith, who taught moral philosophy at the University of Glasgow, described a system of natural liberty that enabled ordinary people to cooperate and create wealth through free, mutually beneficial exchanges. His book was not about abstract concepts, but was filled with everyday life examples. He illustrated key points by describing how the world seemed to work, not how he wished it would work.
Smith was proven right. Across centuries, access to markets has put extreme poverty in a long retreat that still continues to this day. Most people had—and have—more hope because of market-driven opportunities, even without realizing it. We would be wise to keep open the gates to exchange with other people.
Also, in 1776 came the installation of an efficient Boulton-Watt steam engine on a Welsh coal-mine pump, the first successful industrial application. Steam-driven pumps replaced horse-powered devices and helped ease an early energy crisis—England was running out of wood—but more importantly, motivated the first Industrial Revolution.
The combined entrepreneurial genius of James Watt (who happened to be employed at Adam Smith’s university as an instrument maker) and English foundry operator Matthew Boulton led to an explosion of can-do-ism, as more engine builders joined in and transformed the trans-Atlantic economy. While lots of horses, mules, and the businesses that employed them were shoved to one side, the new steam-powered world created improved livelihoods as if from thin air and brought hope. Entrepreneurship, innovation, and competition enabled the formation of a healthier and more prosperous world.
The third world-changing 1776 event was—you guessed it—the formation of a new nation. It was one dedicated, in the words of Thomas Jefferson’s Declaration of Independence, to the proposition that governments serve people in their pursuit of life, liberty, and happiness—and not the reverse. The American founders’ ideas were revolutionary, and in an uncoordinated way embraced, enriched, and made real Smith’s notions, as well as the entrepreneurial spirit observed in the Boulton-Watt partnership.
The resulting institutions enabled the rise of a nation of people who, by dent of hard work and the freedom to invent and build, became known for their creative prowess. The unfolding revolution offered better lives and hope for the rest of the world. The lessons of liberty tell us that governments that serve people, not the reverse, brighten the prospects for a better life.
Smith’s Great Insight and Where it Stands Today
Adam Smith’s great insight was that free people whose property rights are protected can find happiness beyond their own capabilities. All they must do is figure out how to make other people happy. Cooperation, not force, is the ticket to happiness. And trade is how we cooperate. As Smith famously put it, the baker and brewer bring us bread and beer, which we happily purchase, because they are pursuing happiness for themselves and their families.
And as Jefferson saw it, the new nation would encourage what we call gains from trade. Ever since, industry, entrepreneurship and competition—while usually messy and never perfect—have sought solutions even when pessimism appears to reign. It’s happening now, with promising vaccines on the way, medical supplies in greater supply, businesses by the thousands adapting to new constraints so they can serve their customers and survive, and an economy that has bent quite a bit, but not broken.
Of course, there are other ways to obtain the world’s goods, which Smith acknowledged, and which are as common today as ever. One can turn to politics and lobbying to obtain wealth from others. One can seek to use the state to block competition, or to regulate all wrongs, large and small, into rights. Some of this is inevitable, but too much of it elevates government to the focal point of society. It magnifies the importance of being heard and seen, as opposed to more quietly producing things that people want or need. Sometimes, this way of thinking can make chaos seem to reign supreme. Indeed, at the time Smith was writing, his world was shot full of government interventions, tariffs, regulation, and political favoritism.
Smith’s answer was a limited-but-critical role for government: protecting society from violence or invasion, protecting individuals from injustice and oppression, and providing critical public works and institutions. When we consider America’s almost 250 years of experience, how has this notion held up? Two scholars from Presbyterian College, Jody Lipford and Sydney Patton, have an answer. They calculated the share of U.S. government spending on Smith’s vital functions versus all other categories. The latter, which includes a large array of transfer programs, now accounts for roughly 80 percent of the budget, up from around half in 1960.
It appears we’ve been sitting at a crossroads for some time now. Will our collective actions keep the spending trend going? Will we ask for more political management of our lives, or more private initiative? Will we take to the streets to protest more frequently, or spend more time tending our shops, so to speak, and finding ways to please our customers?
Or will the pandemic and other recent experiences cause us to nudge in a different direction, look to further unfetter the human spirit, and perhaps rekindle the belief that hope comes from inside us?
Whatever the distant future brings, 1776 will be very much alive in 2021. If not in every politician, then in most of our countrymen’s hearts and minds. Yes, some people argue passionately that these three ideas are outdated, unfair, or otherwise inadequate for our day and age. We can listen to their critiques, but should never take for granted the prosperity liberty has brought.
Whether or not Smith expected any nation to wipe the slate clean and adopt full-bore his ideas, they remain powerful enough to carry us through the next year and beyond. Each person can choose to look inside himself or herself—or to the industry of our countrymen—when seeking hope. As long as the doors of opportunity are open wide, property is protected, and entrepreneurship and cooperation are encouraged, hope can originate inside the human breast. We don’t need to wait for it to emerge from some Senate hearing room.
Let’s seize the compass formed by three profound 1776 ideas and follow its direction in a chaotic world.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director with the Federal Trade Commission.