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The Secret of American Prosperity

No, it's not the government.

by James Leroy Wilson
February 19, 2004

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The year 1913 saw the creation of a banking monopoly called the Federal Reserve System that would have federal appointees control the money supply - although the Constitution never authorized any such thing. It also saw the “ratification” of the Sixteenth Amendment which authorized the income tax, and the Seventeenth Amendment which called for the direct election of Senators by the people.

These three events essentially gave the federal government unlimited power regardless of what the Constitution said. The American people were dependent on the Fed for their access to the money supply, and what they acquired from it could be taxed away by Congress. Dependent upon the government for virtually the entire state of economic affairs, the direct election of Senators was the final nail in the coffin of the Republic that once was. When Senators were appointed by state legislatures, those legislative members were jealous of their own power, which meant they would send to Washington Senators who would protect the state’s wealth and rights to self-government.

But when the Senators could appeal directly to the people, instead of jealous state legislators, they would be able to more effectively transform the nature of the federal government from that of a democratic republic to a republican democracy. The Congress, and all the branches of the federal government, would now have greater power over the people than their own states did. There was no check on ambitious Senators from within their own states, and they would no longer protect the interests of their states, but rather protect the economic interests of this now-servile citizenry. Washington D.C. is where the money is, and I’ll bring my state’s “fair share” of the nation’s wealth home.

Many of us do not realize that the system of checks and balances in our nation’s system of government was not only amongst the three branches of the federal government, but also on checks from the state: one branch of Congress would be accountable to the people, the other accountable to the state legislature.. The direct election of Senators made a farce of this system. The people in each state would elect the two Senators from the state, which means that for the composition of the Senate the voting power of one voter in a small-population state was many times that of a large population state: today the imbalance between citizens in Wyoming and California is around a ratio of sixty to one. And this at the very time when, with the new Fed monopoly and the income tax, more and more power transferred to Washington. Somebody like Tom Daschle from South Dakota could become second-most powerful politician on the globe, when, considering the population of the United States, virtually nobody voted for him.

The relationship was different when the states were treated as equals in their sovereignty, Senators were accountable to their state legislatures, and the powers of the federal government were limited. But no longer. While I think the income tax and the Fed were such powerful tools for politicians that virtually no traditional Constitutional check would have restrained the federal government, I am certain that the direct election of Senators speeded up the process by quite a bit.

What did we get? World War I in four years, a war that had nothing to do with national security but which gave federal politicians far greater power over our lives. And then what followed? Prohibition. Then the New Deal. Insane agricultural policies. Then dragging us in to World War II as a means to revive the economy. Massive tax increases. Then the United Nations and other international bureaucracies. And Korea, Vietnam, the abolition of freedom of association through Civil Rights Acts. And the Great Society, the abolition of the gold standard and the introduction of permanent inflation, plus the regulatory state, the War on Drugs, and ballooning deficits. And an out-of-control Supreme Court that thinks prayer in a local public school is a First Amendment issue but the national prohibition of criticism of federal politicians is not.

But it also must be admitted: Americans are healthier and live longer. They have greater time for and access to arts and leisure. They are more productive than they’ve ever been. With the greater choices from affluence, it would seem that Americans are freer. There seems to be a correlation: more government means greater prosperity and freedom. That maybe through it all, our system “worked” for the benefit of the American people.

And I agree, the "system" worked, but the "system" was not the government. In fact, the only thing the government really did was make things much worse than they would have been. Indeed, there’s scarcely been a time, except for our wars and the government-induced and -prolonged Great Depression, where we weren’t better off than at any time before. Even before the era of big government, the people prospered. The economy grew. Even people, as a result of better diet due to greater wealth, grew.

Greater prosperity for all is a reality of our culture that keeps chugging along. More and cheaper products are available to more and more people despite government taxation and regulation. And two words account for this miracle:

Free trade.

I know, I know, please don’t write your letters. I know that since the Constitution’s inception that there’s been a large class of influential wealthy people and politicians who have believed in trade restrictions and managed-trade bureaucracies, seeking exclusive advantage in the American market over outside competitors. We’ve never had fully free trade with other nations, though to the extent that we had it, the more prosperous we and our trading partners became. So let me extend it to five words:

Free trade between the states.

Of all of the provisions in the Constitution, this is one of the few still standing. A state can’t levy protective tariffs on goods from another state, and the trade policy with foreign countries is uniform throughout the states, directed by the federal government. And we are a large market. Once you jump through all of the regulatory hoops, if you have developed a product or service that is attractive for its quality, price, or both, than you have a market of hundreds of millions. No state can make money from placing an import tax, or tariff, on your product. That’s why our stores are shelved with great quantities of many different products. And why what was rare twelve years ago, like DVD’s or access to the Internet, is now commonplace.

This is the secret of prosperity of the United States, and of Canada, of the European Union, and of a growing part of east Asia and of several other parts of the world. Despite all of the socialist measures and regulations, where there is still enough freedom of action to make a profit from one’s own hard work and/or talents, there is going to be greater prosperity for all.

The danger is always that the government will take credit for something it did not and could not do: engineer prosperity. The danger is the myth that the economy can be “fixed” by politicians in Washington. But the economy can’t be fixed, because it is always evolving. The best thing that politicians can do for the prosperity of our nation is to enact budget cuts, tax cuts, and deregulation. For the more freedom the individual has to make a profit from his hard work and/or talent, then even better off will we be.

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Barnabas from The Partial Observer writes:
February 21, 2004
Then dragging us in to World War II as a means to revive the economy does not sound like a provable assertion. A cause-and-effect relationship is assumed in the argument. That we entered World War II is a historical fact. That the economy revived is a fact. That we fought the war in order revive the economy is not a fact. It is an hypothesis treated as fact, not in the least self-evident.



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