McDonald – Keynote Address, Virginia, 2003

Forrest McDonald
University of Alabama

Philadelphia Society Keynote Address
Williamsburg, Virginia
October 3, 2003

Members of the Philadelphia Society, unlike many of the
people who labor in the groves of academe, have a wholesome respect for the
American constitutional system, despite the distortions that have been inflicted
upon that system in recent decades. Moreover, judging from the conversations I
have had with various members throughout the years, most of you are well
informed as to how we happened to have been so blessed. Judging by a look at the
program you will hear tomorrow, you will be even better informed twenty-four
hours from now.

Again, unlike denizens of the academy, we all appreciate
our economic system of private enterprise for profit in as free a market as
possible. But I expect that most of you assume that the economic system was born
part and parcel with the constitutional order, in keeping with the Framers’
intentions. But that is not the way things were. "Wait a minute!" you
may be thinking. The English philosopher John Locke, whose views were familiar
to virtually every American of the founding generation, had taught that the
ownership of property was a God-given natural right, antecedent to civil
society, and the revolutionary state constitutions and bills of rights had given
ringing approval to that dictum. James Madison, in the Constitutional
Convention, cited "the security of property" as being first among
"the primary objects of civil society," and the other delegates echoed
that sentiment.

But one cannot leap from the framers’ belief in the
sanctity of private property to the conclusion that they advocated either
capitalism or a free market economy. The very thinkers whom Americans looked to
for their ideas about private property placed limitations on the right. John
Calvin opined that a man might choose among many callings but was bound by God’s
law to follow the one that promised the greatest public good. John Locke taught
that a man could accumulate property, but only insofar as he could consume it
and none went to waste; the rest belonged to the public. Sir William Blackstone
in his Commentaries on the Laws of England famously defined property as
ìthat sole and despotic dominion which one man claims and exercises over the
external things of this world, in total exclusion of the right of any other
individual in the universe"; but after formulating that definition on the
second page of book two of the Commentaries, Blackstone devotes the
remaining 518 pages of the volume to qualifying and specifying exceptions to it.

In addition to the many such qualifications that Americans
had inherited from the mother country, the states or local governments fixed the
prices of bread, regulated rates charged by millers and innkeepers, and
interfered in buying, selling, and lending. They routinely set aside private
contracts on the basis of the medieval concept that everything had an intrinsic
"fair value" and therefore a "just price." A modern market
definition of contracts was yet to appear in America.

Overcoming these obstacles to the emergence of a free
market order was made difficult by two ideological considerations. The first was
the commitment to a republican form of government. Most Patriots had come by
their republicanism willy-nilly, as a by-product of the general reaction against
the supposed excesses of George III and with neither a historical nor a
philosophical understanding of what they were embracing. Between 1776 and 1787,
however, increasing numbers of public men took the trouble to learn about the
history of republics and to study the writings of theorists of republicanism.
Two distinct species of republican ideology arose as a result–one, the more
nearly classical, may be described as puritan, and was concentrated in New
England; the other, the more modern, may be described as agrarian and was
concentrated in the tobacco belt.

The two varieties held a number of attitudes in common, the
most crucial being preoccupation with the mortality of republics. The vital,
which is to say life-giving, principle of republics was that of public virtue.
It is important to understand that these two words are both derived from
Latin roots signifying manhood. The public did not comprehend everybody, only
independent adult males. Public virtue entailed firmness, courage, endurance,
industry, frugal living, strength, and above all unremitting devotion to the
weal of the public’s corporate self, the community of virtuous men. It was at
once individualistic and communal: individualistic in that no member of the
public could be dependent on any other and still be reckoned a member of the
public; communal in that every man gave himself totally to the good of the
public as a whole. (That, by the way, is what the phrase in the Declaration
"the pursuit of happiness," meant; one found happiness or fulfillment
in service to the public well-being.) If public virtue declined too far, the
republic died. Philosophical historians had worked out a regular life cycle, or
more properly death cycle, of republics: manhood gave way to effeminacy,
republican liberty to licentiousness; licentiousness, in turn, degenerated into
anarchy, and anarchy led to tyranny.

As for puritanical republicanism, almost nothing was
outside its purview, for every matter that might in any way contribute to
strengthening or weakening the virtue of the public was a thing of concern to
the public–a res publica-and was subject to regulation by the public.
Republican liberty was totalitarian: one was free to do that, and solely that,
which was in the interest of the public; the liberty of the individual was
subsumed

in the freedom or independence of the political community.
Lest this seem an overstatement, listen to the words of John Adams, writing to
Mercy Warren. Republican government, he informed her, could be supported only
"by pure Religion or Austere Morals. Public Virtue cannot exist in a Nation
without private, and public Virtue is the only Foundation of Republics. There
must be a positive Passion for the public good, the public Interest, Honour,
Power and Glory, established in the Minds of the People, or there can be no
Republican Government, nor any real liberty." The public passions,
he emphasized, "must be Superiour to all private Passions. Men must . . .
be happy to sacrifice their private Friendships and dearest Connections, when
they stand in Competition with the Rights of Society."

The agrarian variety of republican ideology was less
stringent. In the tobacco belt, virtue was likewise reckoned as manliness, but
manliness depended upon owning enough land, unencumbered by debts or other
obligations, to provide a man and his family with all their material needs; and
this independence was in the last analysis measured by a man’s ability to bear
arms and use them to settle his own quarrels or defend the public.

To both versions of republicanism, capitalism posed a
theoretical threat: to the puritanical republicans because unbridled commerce
could lead to a love of luxury, vice, effeminacy, and to agrarian republicans
because it could lead to debt and a concomitant loss of the land on which
independence rested. It might be added that a model for a commercial republic
existed, the "Most Serene Republic" of Venice, but the attractiveness
of Venice had vanished, at least among Americans, because of the city’s decline
and because Thomas Otway’s popular play Venice Preserved depicted the
republic as a wretched, corrupt oligarchy.

Thus it came about that republicanism and the pursuit of
wealth were regarded as incompatible. Plato, believing that a relative equality
of property was essential to a republic, had warned that none be situated along
navigable rivers, lest trade spring up. Lycurgus, in what Montesquieu described
as "the most perfect model of government that was ever framed," that
of ancient Sparta, had banished trade entirely. Montesquieu himself, whom
Americans read as the latest word on republicanism, had cautioned that
frugality, simplicity, and a "mediocrity of abilities and fortunes"
were necessary to sustain the public virtue that was the life-blood of
republics. Indeed, Montesquieu said that it was "absolutely necessary there
should be some regulation in respect to all forms of contracting. For were we
once allowed to dispose of our property to whom and how we pleased, the will of
each individual would disturb the order of the fundamental law."

Another ideological barrier to the emergence of capitalism
arose from what has been called the Gospel of Opposition. During the 1720s
London had experienced the kind of speculative mania that wiped out John Law’s
South Sea Bubble in France, but skilled management and pure luck enabled England
to escape that disaster. Then over the next two decades Sir Robert Walpole (the
first English "prime minister," a term that was coined in derision)
adroitly conducted England’s public finances in ways that for practical purposes
turned the public debt into the basis of the money supply, making the kingdom
enormously richer and more powerful. It also made a lot of new men vastly richer
and more powerful and set off a tirade of oppositionist writing by Henry St.
John, first Viscount Bolingbroke and his circle.
The oppositionists denounced the nouveau riche as paper shufflers,
aristocrats, blood-suckers, monopolists, and speculators whose ill-gotten gains
were won at the expense of honest laborers in the soil. Underlying the attitude
was the belief that economic activity is a zero-sum game: if individuals or
nations grow wealthy they necessarily do so at the corresponding cost to the
less fortunate. The Bolingbrokean message took deep roots in America and shaped
the anti-capitalistic mentality that persists to this day.

A further obstacle stood in the way of the emergence of
capitalism, and that was the lack of an institutionalized means of monetizing
credit. Those means were not merely lacking; under existing circumstances, they
were prevented from developing. In addition, a mental barrier held back those
whose need for credit was most immediate, namely merchants, for to them credit
was personal and a matter of respectability. Given good family connections,
recommendations, and a reputation for integrity, credit was forthcoming even in
the absence of collateral. Otherwise, it was not.
Eighteenth-century merchants looked askance at the kind of
depersonalized, collateral-based credit which is essential to capitalistic
enterprise. John Adams expressed a widespread attitude when he declared that
"he who could devise a method to abolish credit forever, would deserve a
statue to his memory."

It is unnecessary, for our purposes, to inquire whether the
framers of the Constitution intended to change all this and bring about a new
economic order. A miniscule number of them did; the vast majority did not. The
relevant fact is that the adoption of the Constitution made such a
transformation possible. It did so in several ways, four of which, in increasing
order of importance, may be mentioned briefly.

First, there was the contract clause: Article I, Section
10, which prohibits states from passing any laws "impairing the obligations
of contracts." That paved the
way for the development of a market economy based on the consent of the
contracting parties, which took place within a single generation. And after the
Supreme Court’s decision in the Dartmouth College case, ruling that a corporate
charter is a contract, it opened the way for the corporate revolution that was
soon to come.

Secondly, the Constitution established various provisions
concerning public debts and taxation, which Congress, under the guidance of
Alexander Hamilton, used as the basis for erecting a sophisticated system of
money and credit. The Hamiltonian system was emphatic in its commitment to
private enterprise and to a market economy. Primarily that commitment was moral,
not economic. Hamilton believed that the greatest benefits of a system of
government-encouraged private enterprise were spiritualóthe enlargement of the
scope of human freedom and the enrichment of the opportunities for human
endeavor.

Third were the provisions against interstate tariff
barriers, which made the United States into the largest contiguous area of free
trade in the world. Fourth, and most vitally, the Constitution established a
limited government under law; and a limited government under law, in turn, made
possible almost unlimited human achievement.

It was not to be expected that, simply because the new
Constitutional order made the new economic order possible, the change would be
embraced without resistance. The old ideologies and prejudices were still
intact, and as Hamilton put it, "men are often so much governed by what
they are accustomed to see and practice, that the simplest and most obvious
improvements in the most ordinary occupations, are adopted with hesitation,
reluctance, and by slow gradations." The Bolingbrokean agrarians from the
tobacco belt mounted the greatest resistance: under the leadership of Jefferson
and Madison they labored long and skillfully to organize an opposition party.

When they succeeded in gaining control of the federal
government in 1801, they set out to undo everything that Hamilton had created,
and for a time they prospered. Then they blundered their way into an almost
disastrous war and afterwards found it necessary to recreate Hamilton’s system.

A generation later, their successors, the Jacksonians,
destroyed it all anew, leaving the economy in shambles. Only gradually did the
economy recover, and not until after the Civil War did the new economic order
fully triumph–but triumph it did.

Thus by happenstance and a process of evolution it turned
out that capitalism and a free market economy became the truest supports of a
republic and the guarantors of its longevity. The drafting of the Constitution
has been called "the miracle at Philadelphia," and inasmuch as it
brought together under one roof an assemblage of cantankerous states, perhaps it
was a bit miraculous, though its structure was in keeping with a century and a
half of self-government by the American people. I submit that the evolution of
our economic system qualifies even more as a miracle, for that took place
despite the experience of the American people.

The German statesman Bismarck is reported to have said that
a special Providence looks after drunks, fools, and the United States of
America. I don’t know about drunks
and fools, but I am confident that he was right about the United States of
America.