This article discusses a concept in my book Life, Liberty, and the Pursuit of Happiness, Version 4.0 that was published in World&I Online April, 2008. It continues to be more timely as we continue to allow special interests tear our governments apart.
Modern society consists of three major components: (1) culture, (2) government, and (3) the economy. The founders of the United States specified the relationship between culture and government in the first amendment, which forbids the establishment of religion, but they did not make a similar declaration with respect to the relationship between government and the economy. In their day, the economy did not exist in separate concentrations of power since it was mostly based on family-run businesses and farms.
However, human freedom requires freedom in the economic sphere as well as the religious and political spheres. Following industrialization in the nineteenth century, corporations were given more power by the courts, amassed greater capital, and eventually used that power to displace the political and economic power of ordinary citizens. A socialist backlash attempted to use the force of government to plan industrial output. In Europe, these two trends led to different forms of totalitarianism. On the right we had National Socialism and Fascism and on the left we had Communism.
Today the lack of clear relationship between political and economic power is one of the most serious problems facing the United States. Economic planning by the government and businesses procuring government favors lead to the establishment of commerce and the prevention of free exercise in the market. Massive government inefficiency, loss of economic competitiveness, overpriced oil and healthcare, and loss of personal freedom are all unwanted results. An amendment to the U.S. Constitution relating to the economy that is similar to the establishment clause related to religion could be a first step in solving this problem.
The Role of a Legitimate Constitution
The role of a legitimate Constitution is to provide general rules that, when followed, allow a state to achieve a desired end. Those rules can be known in advance by all players, who will want to obey them if they appear useful, fair and impartial.
We can compare a Constitution and its legitimacy to the rules of driving on a highway. The rules, which are aided by the posting of signs, enable people to use the highway by refereeing the flow of traffic so that users can get to their individual destinations without having an accident. Not to have these rules would lead to a system of anarchy on the highway that would prevent people, especially those without heavily armored vehicles, from reaching their destination in a timely manner and without vehicle damage.
The rules of a highway are considered legitimate when they apply to all drivers equally and assist drivers in attaining their destinations. If a particular class of people got shorter stoplights, or access to special roads, people in other classes would not consider the rules legitimate. If some classes of drivers were forced to go a long circuitous route, while others were allowed access to a direct route, the system would not be considered legitimate by those against whom it discriminated. Even people of conscience in the classes the rules favored would be struck by guilt and not consider such rules legitimate. Exceptions for police and emergency vehicles that are impartial with respect to classes of people are generally considered legitimate by all classes.
A legitimate constitution is a legal structure that allows those who follow it to achieve their desired ends. It provides no serious impediment to the law-abiding citizen because it provides rules that create a social order and only restricts those who would impose their arbitrary will by force on other citizens. A constitution imposed by a king upon a people might be “legal” in the sense that it is law backed by force, but it would not be considered legitimate by those upon whom it was imposed if it treats them unfairly. Legitimacy implies near universal voluntary recognition of the usefulness and impartiality of the legal structure.
History has shown that legitimate governments, like legitimate highway regulations, require little policing. There must be police and a legal system that enforces the regulations, but the enforcement system can be small in comparison to the numbers of people using the system as a whole. However, when a government system is considered illegitimate because it imposes rules considered arbitrary or unfair, people feel no compulsion from their conscience to follow those rules and large numbers of police or military personnel are required to keep order. Such states are called police states, military dictatorships, or totalitarian regimes.
The Constitution of the United States
The Constitution of the United States was designed by its framers as a set of government groundrules for a free society in which people could pursue life, liberty, and happiness.1 This framework has been long considered by the majority of its citizens to be legitimate. This is also the most likely reason the United States has survived longer than any other existing government. The U.S. Constitution was not accepted as complete until it was accompanied by the Bill of Rights, the first ten amendments, which served as a further protection of individual liberty against government encroachment.
While the U.S. Constitution succeeded in creating “a more perfect union,” it did not create a “perfect union” or an “eternal union.” Since its creation, it has suffered many challenges, such as the issue of slavery, which led to the Civil War, and several post-Civil War amendments.
Today, one of the most serious challenges to the survival of the United States rests in laws that undermine freedom in the economic sphere. The Constitution and Bill of Rights did not provide individuals economic protection, or elaborate the role of government in the economic sphere. Over the last two centuries economic power in the United States has consolidated, often with the collusion of the government, in ways that impede productivity and individual freedoms. There is no constitutional check on the growth of this Leviathan that increasingly attempts to plan the economic future of American citizens, while it undercuts the very mechanism of economic independence that allows for democracy to exist in the first place.
This omission, not clearly apparent to most of the framers of the Constitution, has allowed the United States to veer from the road to “life, liberty, and the pursuit of happiness,” and turn toward “the road to serfdom” which was aptly described by F. A. Hayek in his book by that name published in 1944.2 In this article, I propose to address this problem with an amendment stated as follows: Congress shall make no law respecting an establishment of commerce, or prohibiting the free exercise thereof
A Brief History of State/Commerce Relations
A tension in the Constitution
The United States began as a place where strong productive people sought to create new lives and communities. The Puritans, who exemplified the Protestant work ethic, were among the first to arrive. Many others who followed adopted the self-reliant lifestyle and settled on new farms or set up new shops or businesses in towns. These immigrants wanted a new life where they could own property and retain the fruits of their work, unencumbered by the taxes and corruption they had experienced in Europe.
However, the taxes and monopolistic practices of the government of King George III of England were increasingly imposed upon the colonies until there was a rebellion and England suspended the constitution of Massachusetts. Some have called the Boston Tea Party, aimed at the Crown’s tea monopoly, the first act of protest against globalization. The Hudson’s Bay Company and the East India Company were banned from the United States after the revolution.3
The founding fathers sought to create a more perfect union than the Articles of Confederation by adopting the new Constitution in 1789. At the time of its drafting the economic power of corporations was a non-issue, because foreign corporations had been banned and domestic corporations, to the extent they existed, were regulated by state charters which normally expired in 20 years. Many corporations were local institutions like fire departments and libraries. The Federal government was designed to be involved only with the regulation of interstate commerce and not with any other economic activity per se, except for the printing of money. The Federal government was forbidden to impose taxes on the exports of any states and mainly relied on duties on imports for its revenue. The federal government had no direct economic relationship with the individual citizens of the states that made up the union.
In Federalist Paper No. 10, James Madison wrote that the destructive effects of factions needed to be controlled and that either religion or economic power could be the cause of a faction. He and other Federalists like Alexander Hamilton thought a larger central government would be better able to contain the influence of factions. The anti-Federalists, exemplified by Jefferson, also saw the problem with factions but advocated smaller and decentralized government, rather than a central government as the way for them to be best contained.
There was a major difference between the Hamiltonians who sought to develop a commercial society and the Jeffersonians who promoted an agrarian society. In Thomas Jefferson’s vision of an agrarian society, each family owned its own property for its economic livelihood and had one vote. This would widely distribute wealth and political power across the voters of the nation. In a letter to James Madison in 1787, Jefferson wrote:
I think our governments will remain virtuous for many centuries as long as they are chiefly agricultural; and this will be as long as there shall be vacant lands in any part of America. When they get piled upon one another in large cities as in Europe, they will become corrupt as in Europe.4
This quote echoes Aristotle who, in his Politics, argued that democracies worked best in agrarian societies because everyone was self-sufficient and would have no motivation to try to use political maneuvering to receive an income off of someone else’s production.5 Jefferson was worried that economic monopolies would impede freedom and argued that they should be forbidden in the Bill of Rights. He also suggested the protection of copyrights or patents be limited to writers and artists in his suggested article:
Article 9. Monopolies may be allowed to persons for their own productions in literature, and their own inventions in the arts, for a term not exceeding __ years, but for no longer term, and no other purpose.6
Hamilton sought a strong central government that promoted the interests of commerce and industry. He advocated a central financial system that provided credit for industrial development, commercial activity and the operations of government. He devised a Bank of the United States, sponsored a national mint, and argued for tariffs for the temporary protection of new firms to foster the development of competitive national industries. These measures created a solid group of businessmen who stood firmly behind the national government.
Jefferson recognized the value of a strong central government only in foreign relations, but he did not want it involved with a domestic economy. Jefferson feared tyranny when power was centralized and the sought protection of individual freedom. Hamilton feared democratic anarchy and wanted an efficiently planned government.
Jefferson objected when Hamilton introduced his bill to establish a national bank, saying that the Constitution expressly enumerates all the powers belonging to the federal government and reserves all other powers, such as establishing a bank, to the states. Hamilton argued that a vast body of powers was implied by general clauses, and one of these authorized Congress to “make all laws which shall be necessary and proper.” The Constitution authorized the national government to levy and collect taxes, pay debts and borrow money. A national bank would materially help in performing these functions efficiently.
Washington and the Congress accepted Hamilton’s view. This was an important precedent for an expansive interpretation of the federal government’s authority. In 1791 Hamilton lead a movement to charter a federal bank. The federal government owned $2 million of the $10 million in stock. In 1792, 24 brokers and merchants signed the “Buttonwood Agreement” to trade securities on a commission basis and laying the basis for the New York Stock Exchange. By 1811, the power of the Federal Bank’s directors had come to frighten many people and the Charter was not renewed.
Five years later, in 1816, a second federal bank was chartered on arguments similar to the establishment of the first: the needs of a growing economy. Jefferson went on record in opposition. The Supreme Court, under Justice John Marshall, created legal rulings in support of the Federalists. However, a populist backlash followed in the period of Andrew Jackson and in 1836 the second bank’s charter was allowed to expire despite the fact that many promoters of European-type banks and corporations continued to exist.
The Triumph of the Industrial State
It was the development of the railroads and the heavy steel industry and the occasion of the Civil War that laid the basis for the Federal government to trump states’ rights once and for all. Abraham Lincoln, one of the organizers of the Republican Party, which was born out of antislavery activism, was elected U.S. President in 1860. Lincoln had been a lawyer for the Illinois Central railroad and got railroad backing as a candidate. In 1850 about 9,000 miles of track had been laid in the United States and by 1860 more than 30,000 miles of track was in use, much of it as a result of government subsidies. As railroads grew in size, they grew in political influence. Everyone wanted a piece of railroad action. Railroad money influenced legislation and the courts. By 1890 more than 180 million acres of land had been deeded to railroads.
Lincoln was a unique combination of anti-slavery activist and industrial nationalist. His strong anti-slavery posture led him to sign the Emancipation Proclamation against the wishes of his cabinet.7 The anti-slavery movement also gave him a moral platform to invade the South and bring it back to the Union through the use of force in a Civil War. During the war the arguments for national banks to fund war production and transportation led to the National Banking Act of 1863.
Following the Civil War, the “Civil War Amendments” made it constitutional for the federal government to directly intervene in the affairs of individuals. The Fourteenth amendment was ostensibly passed to guarantee full citizenship to freed slaves by giving the Federal government the authority to intervene when states deprived individuals of due process. However, the amendment was rarely used for such purposes. Rather, industrial lawyers convinced the Supreme Court (which included several former industrial lawyers) to rule, in Santa Clara County v. Southern Pacific Railroad (1886), that the railroad would have equal protection against confiscation of property as a “person” within the meaning of the Fourteenth Amendment. This action and others reversed the notion at the time of the founding that corporations would be confined to the charters of states. The state’s ability to oversee corporate behavior became severely restricted.
The Triumph of the Global Corporation
It was only a short time before the interests of commerce pushed for a stronger U.S. Navy and the acquisition of ports, using the argument that this was how the British Empire had become so prosperous.8 The stronger Navy enabled the United States to conduct its “gunboat diplomacy” at the turn of the twentieth century. International finance drew the U.S. into World War I as fear of default on international loans by J.P. Morgan and other U.S. banks to France and England would mean collapse of several large U.S. financial institutions.9
Global financial and industrial expansion eventually led to a freeing of corporations from national fetters. The logic of capital cares for no political boundaries. Without elaborating further on the history of this expansion in the twentieth century, I will simply point to the triumph of globalization with a couple of recent developments. In 2007, the New York Stock Exchange merged with the European stock consortium Euronext, whose oldest historical member was the Dutch East India Company, which had been forbidden to operate in the United States at the founding.10 Also in 2007, Halliburton, a major U.S. corporation that has provided services to the United States military, established a headquarters for its Chairman and CEO in the United Arab Emirates “to focus [the] company’s Eastern Hemisphere Growth.” Meanwhile, IT giants like Hewlett-Packard, IBM, and Electronic Data Systems have moved significant portions of their operations to India.
Rising inequality of income and wealth in the United States is the result of fewer middle-class jobs in the United States. Many college graduates have had to take lower paying jobs in the service sector, while owners and stockholders of corporations that have increased profits by outsourcing work to other countries are getting wealthier. Thus, the start of the twenty-first century has been accompanied by a shrinking of the middle-class in the United States; this is not a good omen for the future of its democracy.
Socialism and Corporate Taxation
The rise of the modern corporation was accompanied by large-scale production of goods and services based on quantities of scale. This has made for a higher quality standard of living for millions of people throughout the world. However, these goods and services have been distributed unevenly. Corporations have developed monopolies, cartels, price-fixing and other schemes, often in collusion with governments, to make the distribution of wealth further unbalanced and to eliminate competition that would lower prices. One reaction, a basically socialist impulse, is to use the power of government to harness the corporation and put it in the service of the state.
Marxism-Leninism gained control of the Soviet Union in the revolution of 1917 and garnered a lot of support, especially from intellectuals throughout the world. Many states attempted various types of socialism, and many liberation movements attempted to overthrow capitalism and seize the means of production, e.g., nationalization of large industries. The collapse of the Soviet Union in 1989 led to a final defeat of this idea that a centrally planned economy could be more efficient than an economy based on private enterprise.
Other countries, like the United States, did not accept Marxism but sought to increasingly tax and regulate corporations, using the power of laws to seize a portion of the profits without actually seizing and destroying the means of production. In 1909 the United States enacted a corporate income tax of 1 percent on profits over $5,000 ($113,000 by today’s standards). By 1918 this was raised to 12 percent on all income over $2,000. By 1940 there was progressive taxation on all corporate income, starting with 14.85 percent on the first $5,000 and going up to 36.9 percent. In 1941, this increased to a minimum of 21 percent and a maximum of 44 percent. The highest corporate tax reached 51 percent on profits between $1 million to $1.5 million during the period between 1984 and 1986.11
One result of the corporate income tax is that it encourages corporations to show no profit. Excessive and frivolous advertising boosting corporate egos, expensive corporate retreats boosting corporate morale, and salary bonuses boosting CEO pay, are all responses to this taxation.
A second result of income tax, both on corporations and individuals, is outsourcing and off-shore operations. The flow of capital in a competitive environment is much like the flow of water; it will flow down the path of least resistance. As globalization developed, countries that offered lower taxes and lower wages for workers were able to attract more corporate capital.
A third result of high taxation and a lack of clear standards related to government involvement in the economy is increased lobbying for exemptions, protection, subsidies, and special favors. Often the lobbyists with the most money get the legislation; and such legislation impedes a genuinely free market and serves to “establish” some corporations and penalize others.
Former Secretary of Labor Robert Reich tells stories of the rapidly expanding role of money and influence of large corporations in Washington, which turned Washington from a rather impoverished city before the 1970s to huge expanses of high-rise glass buildings for offices of corporate lobbyists. Many of those lobbyists are former legislators lobbying their former colleagues and earning significantly more money than when they were in office. The uncontrolled escalation of political contributions for election campaigns is the result of lobbyists trying to ensure elected legislators will act in their interest once elected.
In the 1970s, only about 3 percent of retiring members of Congress went on to become Washington lobbyists. By 2005, more than 30 percent of retiring members turned to Washington lobbying…. The amount lobbyists charge for new clients rose from about $20,000 a month in 1995 to $40,000 a month in 2005. By 2006, starting salaries for well-connected congressional or White House staffers eager to move to K Street had ballooned to about $500,000 a year. Former chairmen of congressional committees and subcommittees were fetching up to $2 million a year to influence legislation in their former committees.12
The lobbying efforts of traditional interest groups like the AFL-CIO, which had strong influence in the past, pale in comparison to the money flowing from Exxon-Mobil, Microsoft, Google, Wal-Mart, and other corporate giants that want to make sure laws are passed that enable them to make ever-greater profits for their investors. Americans as investors and consumers are steam-rolling over Americans as citizens. This is not a Republican or Democrat phenomenon. Many of these developments were taking place in the Carter and Clinton administrations at a rate comparable to that of the Reagan and Bush administrations.
The result is that much of the legislators’ time is spent finding ways to address piecemeal concerns of lobbyists rather than enforcing general guidelines, as exist in other areas where the Constitution sets down clear principles. Much of the legislation thus passed is tacked on as “pork,” buried in reams of paper, earmarking money, granting exemptions, or offering protection. It is legislation that is not viewed a legitimate or fair to the majority of voters. Legislators are spending less time on issues of concern to the nation as a whole and more time on issues that affect corporate interests.
The voters call this development, and the Congress, corrupt, and the press is not promoting serious solutions to these problems. Some legislators run on tickets saying they will stop catering to special interests. Others recommend term limits. While legislators are pliable, they are not necessarily bad people. Legislators have inherited a system of government that was created over a two hundred period that had no constitutional guidance on the relationship between government and commerce. The Federalist/anti-Federalist debate left issues unresolved for their successors to muddle through.
Without guidelines as to the use of economic power, decisions have been made by lobbyists persuading politicians, or politicians trying to control corporations. However, neither of these processes had led to a truly fair playing field, and in the end national productivity has been the causality. This is an end nobody wanted.
Planning for Competition, Not Against It
The United States founders had a profound understanding of human behavior and attempted to frame a Constitution that would check the abuse of power by any person, or any branch of government. However, the Constitution is silent on the abuse of economic power. In order to frame a constitution that everyone would agree to sign, the Federalist/anti-Federalist debate was left tabled, as was the issue of slavery. Both of these omissions have come back to haunt the United States, first in the form of the Civil War and now as an economically unsustainable form of government.
However, the Founders, in their defense of freedom and the right to private property, would have easily recognized plots to abuse the average citizen by either high taxation or monopoly/oligopoly. Both of these schemes are ways for non-laboring classes to live off of the wealth that others had legitimately earned.
In this respect, Hitler’s National Socialism and Stalin’s Soviet Communism were opposite ends of a broader philosophy in which the state carried out economic planning. In Germany, while the ownership of corporations was privately retained, the government determined which companies would get what work. In Russia, the state took over the industry and engaged in trying to centrally micromanage everything. Both became totalitarian regimes.
Many argue that either type of state planning (oligarchy or socialism) is incompatible with democracy and limits freedom. Others believe a certain amount of government planning is possible or necessary. I believe this question was succinctly answered by F.A. Hayek when he wrote,
The modern movement for planning is a movement against competition as such… Planning and competition can be combined only by planning for competition, but not by planning against competition.13
Both large corporations (who tend to be Republicans in the U.S.) and socialists (who tend to be Democrats in the U.S.) have planned against competition. Neither has sought to plan for competition. For the monopolist competition is not in their short-term interest. For the socialist it is often the reaction of jealousy which seeks to redistribute wealth without understanding that the best engine of economic production is competition. To illustrate, I will make an analogy to a football game. A good game is played when the rules are fair and competition is intense. So it is with the “game” of economic life.
A corporate lobbyist will attempt to bend the rules in favor of his team so that the outcome is predetermined and he can win without competition. Not many football teams would enjoy playing in a league so constructed; the spectators would not enjoy watching, knowing in advance that the game was rigged. Such a football game would not be considered legitimate, as outcome would “establish” one team by the rules. Laws like this passed in Congress, and accepted by our courts, amount to “the establishment of commerce.”
On the other hand, socialists attempt to plan the game ahead of time based on what they believe the “people” want. All of the players are told in advance what they will do. They are asked to be obedient workers and are given no incentive to work very hard, since they are a part of someone else’s version of “the general good.” They will not be excited to play, and will look forward to the end of the game when they can go out and do something they choose. Such socialist planning can never respond to the contingencies of the future, as the planners are not inventors, but simply new directors of old structures created by others. The result will be exactly how workers described their life in the Soviet Union, “They pretend to pay us, and we pretend to work.” Such centralized planning “prevents the free exercise of” commerce.
Thus, an amendment that prevents both the establishment of commerce and the free exercise of commerce would guard against both forms of totalitarianism without undermining economic freedom and productivity.
Some argue for a middle ground, one that has been the strategy in the United States since 1909. This is to tax all corporations equally, siphoning off a portion of economic productivity without killing the basic economy. This would be like attaching an electrical generator to each football player to help pay for the costs of the entire game. As long as such rules treat all players equally and do not rig the game in the favor of one team, this method works to a degree.
This was the situation of the United States before globalization, when the United States was the only field upon which U.S. corporations could play the game. However, the development of better economic opportunities for corporations in other, made it easy for them to decide to produce their products elsewhere. This is another example of planning against competition. And, planning against competition is the same thing as “killing the goose that laid the golden egg.”14
Can a government plan for competition? It can and should, and the constitutional amendment I am proposing would help this take place. Let’s look at the Superbowl as an example where the entire system of rules is designed to produce the best quality football game possible. There are rules and there are referees, and they are there to ensure that the best competition takes place.
They are a support for competition. The consumers of the game watch because they are inspired by high quality competition. They relish in the human capacity to excel.
Money is made on the game by charging viewers for seats, and advertisers for game broadcast slots, not by charging the playing teams an admission fee or placing a burden on the players. The entire economy surrounding the game depends on using the product of the game, not on planning its outcome.
The rules of a football game can also define boundaries of fair play. For example, rules are made to prevent players or spectators from reasonable harm, without reducing the competitiveness or excitement of the game. In fact, such rules, and referees to enforce them, are required or the game would get considered too dangerous to play. By analogy, a market that did not have rules to define the boundaries of fair play could be unsafe or destructive social or environmental consequences.
Government as Referee
If the government assumed the role of referee, rather than acting as a player by either supporting the plans of the monopolists or the socialists, it can provide an attractive field upon which the most competitive economic games can be played. Such a free competitive market will bring jobs back to the United States, lead to higher quality products, and economic growth can be tapped at the consumer level, not at the production stage.
The Separation of Church and State as a Precedent
I deliberately chose the words “Congress shall make no law respecting an establishment of commerce, or prohibiting the free exercise thereof,” because these words parallel the clause in the first amendment “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof” Religion and the economy may provide different functions in society, but in totalitarian regimes both are controlled by government force; people are told what to think and how to act.
When the Constitution was framed, the separation of church and state was a practical necessity for gaining the assent of the diverse religious population of the United States. Freedom of religion had not been instituted anywhere else in the world, except in Holland after the Spanish Empire had retreated. Several states had established religions and wanted to be guaranteed no other state’s religion would become official. The Founders did not want an established religion to have undue influence on government or attempt to impose an official truth on the state. They left the option of separation of church and state within states to their own determination. However, by 1828 all states had ended the establishment of religion.
Disestablishment of religion had some unexpected positive effects. Ministers and churches found themselves competing for voluntary adherents on the open market for religion. Many established churches attempted to promulgate doctrines and traditions developed for a previous era when free thinking was discouraged or forbidden. However, in the new U.S. democracy conditions were very different. To win church membership, ministers had to provide services and teachings useful to the people. Therefore they thought long and hard about ways to improve church teachings and provide spiritual nourishment to members. Since the founding, U.S. church attendance has continued to grow and to service the changing needs of citizens, making it one of the most religiously rich and diverse countries of the world.
During that same period of time church attendance in Europe dramatically declined; and churches were increasingly viewed as irrelevant. Today England has fewer than 10 percent of its population attending Christian churches. New churches have had a more difficult time developing in Europe because subsidies and favoritism for officially established churches often influences legal action against new competitors. There is little incentive for established church leaders to revise what they teach, since they are paid by the state regardless of whether they innovate. As in the economy, a monopoly on religion leads to the increasing irrelevance over time of the usefulness of the monopoly. To the extent they feel the need, people in nations with established churches find ways to develop their worldview and spirituality outside the official church.
The absolute “wall of separation” so often discussed in the United States was never intended to be absolute by the Founders. Removing religion (or culture) from society is like kicking out one of the legs of a three-legged stool. The founders knew that morality was an essential part of citizenship and that religion played an important role in nurturing it. The founders were not opposed to the open promotion of religion in the public sphere, anymore than they were opposed to advertising commercial products to the public. What they opposed was government establishment of religion, and any impediment to the free exercise of religion.
The separation of church and state was neither intended to undermine religion, nor was it intended that religion could be used as a shield behind which one could hide the commission of crimes—which an absolute wall can do. The government has a valid role as a referee to make sure that harm is not committed by one citizen against another in the name of religion. Therefore objective crimes like murder, theft, rape, and fraud, would be subject to government intervention, but the government could not define morality, truth, or cultural practices. Without the government acting as such a referee, we might still be conducting witch trials.
The Economy is the Third Sector
Like the three legs of a stool, culture (religion), government, and the economy form three main supports of a stable society. At the founding, an objective problem did not exist in the commercial sector because foreign corporations had been banned and wealth was distributed among many families. There was no personal ownership of large tracts of land or shares of national corporations by virtue of government office, such as in England and other European countries.
A society requires economic freedom for the economy to fully function. Just as people will pursue religion, knowledge and other aspects of culture for their own development when they are free to do so, they will also pursue the acquisition of property, and produce goods and services to sell to others when they are not inhibited. When the United States was founded, this is what everyone was doing. People not interested in pursuing a new life on their own in America remained back in Europe. The new Americans had no interest in a government caring for them or determining how they would live. Leaving an establishment clause related to commerce out of the Constitution posed no immediate threat to the new nation for many years, until more people began to use the government to manipulate economic power and redistribute the wealth of others.
However, the economy of a state is only as sound as the productivity of its people. Anything more than subsistence living requires individuals to produce more goods or services than they will personally consume. Then they can sell their excess goods to others on the market, using money as a medium of exchange. The value of money is only as good as the products it represents. The fewer restrictions on production or consumption imposed by the government, the more vibrant the economy. The more restrictions on production, the less will be produced. The more restrictions on consumption, the less will be consumed.
An individual, through free choice, is the prime mover in any society, because individuals naturally want to pursue their own happiness and well-being. To the extent this pursuit is restrained and individuals are forced into ends that others create for them, they are less motivated and less happy, and they will produce less. The Founders of the United States designed the Constitution so that individuals could freely pursue their own life. Today the Constitution could better serve that purpose with an amendment that says: Congress shall make no law respecting an establishment of commerce, or prohibiting the free exercise thereof.
Lobbying for Special Interests Would Largely Disappear
Creating clear and fair rules of economic competition will drastically reduce the value of corporate lobbying and the incentives for government/corporate corruption and collusion. Today, because one company can lobby for an advantage other companies feel they must also. Robert Reich compares this to an arms race: “The more one competitor pays for access, the more its rivals must pay in order to counter its infiuence.”15 As long as political deals are legal and serve the interest of profit, corporations will pursue them. It is illogical to criticize corporations for playing by the current rules of the game, or for pursuing strategies that are defined as legal, even if they might be immoral. 16 Massive legal buying of politicians in the United States and elsewhere around the world is a result of the present system. In government, there are more referees on the take than those enforcing just rules of a game.
Do football players and coaches continually lobby to change the rules? Maybe the rules need to be reevaluated periodically, but when they are clear and enforced, there is little use in lobbying. More likely, the persistent complaint of a coach will get him thrown out of a game. Harsh punishments are also given to football referees who accept bribes to throw a game.
Does Competition Necessarily Harm People and Destroy the Environment?
Rules of fair competition in commerce should fine corporations that seek favors through lobbying and should fine politicians caught attempting to ram through legislation that would give a corporation an advantage of competitors. The rules of fair competition are not necessarily opposed to the environment, to consumer safety, or public health, just as rules of competitive football are not necessarily opposed to player or spectator safety. It is irrational to think that a government would care about ones health more than oneself, a spouse, or parents. Constitutional governments are impersonal bureaucracies and, as such, do not “care” about anything. They behave as bureaucracies. However, a government can define harm to people, or to the environment, and enforce penalties against people or corporations that cause such harm.
Take the example of health care. Many people are asking the government to provide them with health care, operating under the illusion that a government health bureaucracy will not be more concerned about its budget than the health of individual people. No version of socialist health care provides health care that people desire. But, no big health care provider group will do that either. People’s desires are unlimited and nobody, no government, and no HMO is able to provide for their infinite needs and desires. Freedom for people to pursue their own health in a competitive market is the best engine of a high volume, low cost health system, just as freedom in a competitive environment is the best engine for church attendance or economic productivity.
It is true that some people are disadvantaged or incapable of caring for themselves, but this is no reason to discard the best engine of production, only a reason to develop a social safety net for those incapable of freely pursuing their own life. Not all people care for their houses and cars equally well, but houses and cars tend to be better kept when they are cared for by individual owners than when they are owned by the state.
When people look to a government to care for them, they are first operating under the illusion that a government can care. Secondly, they are trading their freedom to pursue their own life for some form of servitude.
Where Do We Go From Here?
Modern industrial life largely arose as a result of freedoms available to individuals in Western Europe and the United States. However, modern states lacked historical knowledge or adequate preparation for dealing with the political effects of large concentrations of economic power generated by modern industry. In retrospect, we can see that if the United States Founders had added an article to the Bill of Rights that said “Congress shall make no law respecting an establishment of commerce, or prohibiting the free exercise thereof,” a lot of wasteful regulation that eventually strangled the economy could have been avoided. Also, legislation that encourages free pursuit of happiness, so long as it does not create harm, will lead to a far more efficient government and greater prosperity.
No country was prepared for the social impacts of modern industry. In a legal vacuum, people have been selfishly trying to eliminate competition for their own personal gain by manipulating government power for their own ends. This is true of both monopolists and socialists—two ends of the non-competitive spectrum.
Corporate income taxes ought to be immediately discarded. They only misdirect corporate activity away from efficient production and cause profitable corporations to relocate to places where taxes are lower. This doesn’t help any more than asking players and referees to pay for the costs of a football game. Taxes ought to be levied on individual people who earn profits from the corporation, or on sales taxes on products produced, but placing an extra load on the engine of productivity, causing it to cough and sputter, doesn’t do anything constructive.
Free competition is proven to be the only worthy engine of productivity. In the Superbowl, the referees are few in number, yet many more players and millions of viewers make this a very productive enterprise, based on the thrill of fair competition, fine tuning of human skills, and productive teamwork. A good competitive game uplifts us, challenges us, and causes us to think creatively in ways we can do better. It also has the effect of wealth creation. So it is with good governance. Governments do not need to be large if they act as good referees.
Our swollen modern administrative states are cumbersome and inefficient because they are not acting as true referees, providing a fair playing field for all citizens. Many government departments have attempted, at great expense and waste, to do things “for people,” that most people are happier doing themselves. Governments have a definite role as a referee and a role in providing a safety net for the small percentage of people who are unable to provide for themselves, but even that role is best fulfilled at lower levels of government where real needs can be perceived and more personal care can be delivered.
If we would adopt a constitutional amendment saying “Congress shall make no law respecting an establishment of commerce, or prohibiting the free exercise thereof,” it would be like erecting a traffic light at an unregulated intersection jammed with gridlock. It will take a while to clear out the congestion—to get our Congress and Courts to think in terms of refereeing competition rather than penalizing it—but in the end the free flow of the economy will bring jobs and opportunities that penalizing competition prevents. It will help to once again make the United States a very exciting and optimistic place to live.
1 Gordon L. Anderson, Philosophy of the United States: Life, Liberty, and the Pursuit of Happiness (St. Paul, MN: Paragon House, 2004).
2 F. A. Hayek, The Road to Serfdom (Chicago, IL: University of Chicago Press, 1994, originally 1944).
3 Thom Hartmann, Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights (Allentown, PA: Rodale Press, 2002).
4 Thomas Jefferson to James Madison, 1787. Papers 12:442
5 Aristotle, The Politics, Book VI, Ch. 4 (Baltimore, MD: Penguin Classics, 1974), p. 240.
6 Lipscomb and Bergh, editors, The Writings of Thomas Jefferson, (Washington, D.C.: Memorial Edition, 20 Vols., 1903-04) vol. 7, p. 450.
7 “History of the Republican Party,” Mongomery County Republican Party, http://www.mcgop.net/History.htm, viewed 2/28/2008.
8 Alfred T. Mahan, “The United States Looking Outward,” Atlantic Monthly, LXVI (December 1890), 816-24.
9 See, Ron Chernow, The House of Morgan (New York: Grove Press, 2001), p. 203.
10 “NYSE Euronext Corporate Timeline,” http://www.nyse.com/pdfs/NYSEEuronextTimeline-web.pdf, viewed 2/28/2008.
11 IRS, “Corporation Income Tax Brackets and Rates, 1909-2002,” http://www.irs.gov/pub/irs-soi/02corate.pdf, viewed 2/28/2008.
12Robert B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred A. Knopf, 2007), p. 139.
13 F. A. Hayek, The Road to Serfdom (Chicago, IL: University of Chicago Press, 1994, originally 1944), pp. 45,48.
14From Aseop’s Fables (620-560 B.c.)
15Robert B. Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Alfred A. Knopf, 2007), p. 143.
16 Ibid., p. 214.