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Did Our Founding Fathers Believe in Free Markets?

By Catherine Baab-Muguira - Updated Nov 7, 2016 at 4:49PM

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It's complicated.

It used to be that you only encountered people in colonial-era dress at historical reenactments. These days, though, you're likely to see tri-cornered hats, evoking the nation's Founding Fathers, at political rallies for tea-party favorites such as Herman Cain and Michelle Bachmann. These adherents of the Tea Party generally pursue an "anti-tax, limited government" agenda as The Atlanta Journal-Constitution recently put it.

Paradoxically, some supporters of Occupy Wall Street blithely assure the media that our country's founders never intended the present-day disparity of incomes between rich and poor, or the legal recognition of corporations as people; increased taxation of the very rich and increased regulation of Wall Street and business, some argue, must be introduced to correct these problems.

While it may be politically convenient to invoke our nation's founders to support our arguments today, how much do any of us really understand about the Founding Fathers' thoughts on capitalism, free markets and the economy? For most Americans, however politically engaged, the answer may be: Not a great deal, and not in any detail.

Plundering the past to make debate points?
Putting it matter-of-factly, Alan Pell Crawford, author of Twilight at Monticello: The Final Days of Thomas Jefferson says, "Rightwing politicians and their publicists, like their liberal counterparts, are interested in the past only as repository of pseudo-facts. They plunder the past to make debating points, most of which are unsupportable."

Crawford cites the Founders' views on government regulation as an example. "The evidence seems to suggest that Jefferson and Washington and the men of their time and place had no problem with government regulation of markets," he says.

"County courts in Virginia exercised what conservatives today would consider outrageous power over economic relationships and transactions. They could set the prices innkeepers could charge their customers -- that sort of thing. We might now recognize such powers as unwise or misguided, but Jefferson and Washington seem to have taken it for granted," he adds.

"This isn't to suggest today's conservatives are incorrect in their economics," Crawford concludes, "only that they are incorrect to attribute their views to people who could not possibly have shared them."

The market as innocent until proven guilty
Dr. Hugh Rockoff, a professor of economics at Rutgers University and co-author of History of the American Economy, offers a complementary view: "Madison and Hamilton envisioned a society in which the bulk of economic activity would be carried out in private markets by private individuals trying to get the best returns they could on their labor and capital."

"I think the founders saw this sort of economy both as efficient -- as the best way of generating a large flow of goods and services -- and as a way of protecting other personal liberties from despots," says Rockoff.

While the Founders' ideas largely came from Scottish Enlightenment-era economic thinker Adam Smith, as Rockoff explains, Smith is himself often misunderstood. "Nowadays we tend to think of Smith as a rigid free-market ideologue," he says. "But as anyone who has actually read Smith from cover to cover can tell you, Smith was anything but."

As Rockoff puts it, "Smith believed that the presumption should be that we leave people free to go about their private business as they see fit until experience has shown us that their liberties have to be constrained for the common good. It's a court of law: the market is innocent until proven guilty."

An enlightened, experience-based approach
No matter the ongoing political debate, the Founders' approach to the economy sets a good example for present-day Americans, argues Rockoff.

"We need to think through our policy toward each sector of the economy in the light of experience," he says. "We can't know what the founders would say about current problems, but we can adopt their 'enlightened,' experienced-based approach to trying to solve them."

What is called for, it seems, is less arguing and further study.

For a highly readable account of our nation's most recent financial crisis, check out Motley Fool columnist Morgan Housel's 99-cent ebook, Everyone Believes It; Most Will Be Wrong: Motley Thoughts on Investing and the Economy,available here.

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