THE MYSTERIES OF THE MARKET: Keywords: American communism, Socialism, market economy, the mysteries of the free market, Adam Smith and the Invisible Hand, good intentions and the economy, the spontaneous orders.

THE SPONTANEOUS MARKET 

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A simple pencil is not what you think

I

THE MYSTERIES OF THE MARKET

A meditation about forgotten lessons of American Exceptionalism

By Xuan Quen Santos

                THE DISMAL SCIENCE

                Economics is called by many “the dismal science”. To better understsand this label, let’s travel back in time to England in the 1840’s when it first appeared. It was meant in derogatory terms, it was an insult. What was happening at the time? The high-pressure, piston steam engines had made their impact and the Industrial Revolution had just taken off. Think of all the bad things you have been taught about crowded cities, pollution, dislocation of rural populations, disease, etc. Malthus had predicted famine, death and the return of the plagues because of “the population explosion ”. Innovations in technology were displacing the craft guilds and threatening all the ancient arts and crafts with mass products. The production of iron and steel transformed tools, machinery and construction. Nails or pins no longer were made by hand. Workers were rebelling against machines and throwing their “sabots” (wooden shoes, or shoes with wooden soles) into the textile mills. Sabotage and Luddites are terms born out of the first organized opposition to progress made by labor organizations. The slave trade from Africa had become an embarrasment and slavery was abolished, leading to disruptions in the wage structures of the colonies and great capital losses to the absentee plantation owners. Free trade was becoming a threat to the royally chartered monopolies. The ideas of an open economy as proposed by Adam Smith, had received support by some of the first philosophers called “economists”, such as John Stuart Mill. Free trade entrepreneurs like Richard Cobden and John Bright, few belonging to the landed upper classes, were getting rich “without lineage”. The socialist ideas of the French economists and the violence produced by the French Revolution resulted in the Napoleonic wars, causing inflation and death that affected greatly the lower classes. Marx and Engels had announced the death of capitalism and revolts were multiplying. Economics did not bear good news!

Political Economists believe they can know the future. Really?
Their pretense was called "The Fatal Conceit". It is the basis of socialism

              Such was the situation that led the eccentric Scottish philosopher Thomas Carlyle to pronounce in 1849 his acusation against the science that had not even begun to agree on the basics. Rather than producing an abstract general theory of economic behavior, the focus of the early economists was “normative economics” and “political economy”, meaning what governments should do to manage the economy. Carlyle thought their pronouncements were pessimistic and he preferred the beauty of poetry! Maybe they were just looking for answers to the wrong questions.

                AT THE SERVICE OF POLITICAL POWER

                In spite of the dismal outlook of the 1840s, by now the facts should have highlighted which economic forecasts and ideas were correct and which were in error, but it has not happened. Two hundred years later, we still hear the bickering of “political economists” that obviously are influenced by the political inclinations they have. If they believe the monarchy is the best political system for the government of a state, or if they simply want to keep their job for the treasury of the king, their purpose is to find ways to influence or outright interfere in the economic process in order to satisfy the king’s desires. If their inclinations or their jobs depend on advancing the political goals of a political party, they will propose and support the laws, executive orders, and regulations that interfere in the economic system in order to advance the party’s objectives. That is not economic science.

NO COMMENT

                Up until recently, which in terms of human history are only the last three centuries, there were not many who questioned this confusion. Kings and kingdoms were everywhere and had ruled for milennia. They were owners of everything within their dominions, as much as the head of a household today controls his affairs, family and property. Things began to change when alternative ideas for the ancient political system began to be discussed and the basic principles that explain production, exchange and the creation of wealth were first recognized. The mystery was about to be solved.

                THE DIVIDE IDENTIFIED

One of the first to question whether the management of the economic system falls within the realm of political functions to be performed by government was the Scottish moral philosopher Adam Smith (1723-1790). In 1776, he published “An Inquiry into the Nature and Causes of the Wealth of Nations”. He did not know he was launching the new science of economics. Smith clearly warned that the actions of governments may stand in the way of prosperity and freedom of choice in the market. “It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense... They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.” (Book II, Chapter III). “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice” (Introduction to Book IV).

Adam Smith, Scottish Moral Philosopher
Father of Economic Science

Very few people perceived how revolutionary these ideas were for the times. They were well received by the colonials across the ocean who had been experiencing the consequences of new abusive policies of King George III that were harming their welfare. They perceived those abuses as violations of their rights, not as intrusions into their economies. “The unanimous Declaration of the thirteen united States of America” (July 4, 1776) has a list of grievances that are mostly of a political nature. But, among them are three that are clearly of an economic nature. These are: “…cutting off our Trade with all parts of the world…imposing Taxes on us without our Consent… plundered our seas, ravaged our Coasts, burnt our towns, and destroyed the lives of our people.”  FREE TRADE, LOW TAXES, PROTECTION TO OUR PROPERTY AND CAPITAL INVESTMENT.

It was not just a happy coincidence that Smith’s work appeared the same year as the Declaration of Independence. Besides “Common Sense” (1776) by Thomas Paine,    “Cato’s Letters” (1723), and John Locke’s “Second Treatise on Government” (1689), Smith’s “Wealth of Nations” was a great influence during the discussions that led 15 years later to the final adoption of the United States Constitution (1791). Smith’s work was one of the favorite books of Thomas Jefferson. Till the end of his life, he kept his annotated copy by his bedside in Monticello. His thinking reflects the ideas unveiled in “The Wealth of Nations”: “Agriculture, manufactures, commerce, and navigation, the four pillars of our prosperity, are the most thriving when left most free to individual enterprise”; “Were we directed from Washington when to sow, and when to reap, we should soon want bread”.

President Thomas Jefferson
Main author of the Declaration of Independence

THE POLITICAL SYSTEM IS MANAGED BY THE PEOPLE

The monarchy was abolished, the powers of government were divided, elections became the vehicle for the population’s participation in self-government, the powers of government were limited to specific functions and procedures, and the rights to defend the people’s rights FROM government abuse were clearly outlined.

The innovations were for specific economic policies. The federal public administration was organized with good management rules, such as the obligation to prepare budgets. The states were prohibited from taxing interstate commerce or impeding it. This created the seed for the enormously powerful open market that only now is harvesting its tremendous leverage vis a vis the world economy. It took Old Europe 200 years to learn the lesson, and they still want to “manage” their economy. The constitution also provided many protections against violations of (private) property from governmental actions. Violations or property committed by individuals are covered since ancient times in the criminal and civil legal systems and do not originate in the constitution.

The Fathers of the Country had also learned their lesson from the hyperinflation that almost caused losing the Revolutionary War. The Continental Congress destroyed the country’s first monetary system by abusing the issue of “Continental” bills. The final constitution gave the power to Congress to coin money and regulate its value. It based the monetary system with obligations related to gold and silver and prohibited the issue of “bills of credit”. This was designed to prevent future inflations with debased currency or just fiat money (paper bills without backing). These last provisions have been ignored by ill-advised political economists of the Neo-Keynesian school. The constitution was never altered in this respect. We, The People have allowed this violation to continue past World War II. I am referring to the need to reform or to get rid of the Federal Reserve System, which is technically a cartel of the big banks and has not served to provide a stable and secure monetary system.

THE HOUSTON FARMERS MARKET 2025

THE ECONOMIC SYSTEM IS THE PEOPLE

It seemed for while the separation between the functions of the political system and the economic system had finally been recognized.

Nowhere in the Constitutional Documents is there any provision for the federal government to “manage, direct, coordinate, participate or organize” the economic system, the market; much less  to “own productive resources”. The activities to produce, exchange, buy and sell, give away or share are exclusive prerogatives of the We, The People. To the contrary, the initially approved text of the constitution was expressly clarified with the addition of the Bill of Rights. The amendments one to nine are clear prohibitions for the government to violate certain listed rights of the people, but in case someone would conclude that those listed were the limit, amendments  nine and ten are absolutely clear.

The text of amendment nine states: “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people”. Amendment ten reinforces the principle of limited powers delegated to the federal government. It states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the States respectively, or to the people”.

Anything that is not an activity of the political system, by its very nature, as long as it is peaceful, is a right reserved to the We, The People. It is the right of the people to live their lives. This is the definition of the right to pursue our happiness. A big part of it is by working to satisfy our needs and wants, that is, to participate in the economic process. This is where the separation of the political and economic systems is clear. It is also clear this is the free enterprise system, the market. The economic system is NOT managed by the people. The people manage their economies. Their interactions are the system.

That is why it is an obvious conclusion that the more the political system tries to manage the economy, the less the people can manage their economies. The more the government plans, the less the citizens can plan their lives. The more the government intervenes or interferes with the peoples plans, the less liberty they have. There is no other possible way to view the effects of the political system’s attempts to manage the economic system.

WE HAVE LOST OUR WAY

The reality on the ground today finds the federal government operating without a budget, taxing excessively and unequally, creating inflation with a fiat currency, issuing excessive bills of credit, owning extensive portions of the land, shores and the “EEZ”, the exclusive economic zone of the oceans. More than that, through two undetailed clauses of the constitution, the “general welfare” and the “commerce” clauses, over the years through particular political interests, the courts and partisan blocs in congress have opened the doors to “anything goes”. We have found ourselves turning the federal government into a massive organization of free-loaders disguised as charity, into a partner of favored privileged industries, into the arbiter without rules that selects winners and losers in business, into creating monopolies and cartels, into using regulations to suffocate economic activity, into redirecting the wealth (property) of some people to benefit others.

The abuse of the commerce and general welfare clauses have turned the federal government into the perversion of what the federal constitution established. Adam Smith’s idea that the economic system, the market process, is just an extension of our natural liberty has been annulled by the old system where the apparatus of the state manages and controls the economy for self-serving political objectives. THEY ARE BACK!