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American Capitalism: The Engine of Progress

“The world doesn’t suffer from an unequal distribution of wealth. It suffers from an unequal distribution of capitalism.” Rush Limbaugh

In 1776 Scottish economist Adam Smith published The Wealth of Nations, a ground-breaking book about the benefits of free markets. By coincidence, the United States was born on July 4 of that same year. The Founders of this nation were not economists, and they didn’t set out to build a nation on free market principles, but in their obsession with protecting the freedoms and political rights of individuals they built a free market society almost by accident.

Over the next couple hundred years the free enterprise system Smith advocated would vastly improve the quality of life for people all over the world, and American entrepreneurs would be responsible for most of the improvements.

Mainstream history books don’t say this, but life today would be almost as harsh as it was in 1776 if the United States, that one single nation, had not come into existence.

Life Before America

The human race did very little to improve standards of living during the four or five thousand years of recorded history leading up to 1776. Each nation’s economy was dominated by its government, as Smith made clear in his book; and the individualism and entrepreneurial spirit that would become America’s trademarks, and move the whole world forward, were not allowed to flourish.

In 1776 living conditions for the human race were not much better than they had been fifty years, or five hundred years, or five thousand years earlier. Most European children died before the age of ten, and hunger-related diseases were the primary cause of death.1 Outside of Europe child mortality rates were even higher. Around the world adults and children worked from dawn to dusk to produce enough food, or to earn the money to buy enough food, to avoid starving to death. Life expectancy was around forty years.

The productivity (total wealth produced) of the average working person in the eighteenth century was the equivalent of just a few hundred dollars per year in today’s dollars. Most people could only afford one suit of clothes, and lived in them night and day. Bathing or washing would force people to expend precious resources making or buying soap, and gathering or buying fuel for use in heating water; more effort than most people could afford to spare on a regular basis. Open fires were the only way to heat people’s homes in winter, and fuel was not very affordable for anyone but the rich, so people shivered in their filthy clothes in their homes whenever the weather was cold.

Life, to put it briefly, was hard.

The Benefits of Progress

As we all know, life is much better today. For 2009, the Gross Domestic Product of the American workforce was $97,100 per full time worker, according to US Government statistics.  This makes 2009 workers roughly one hundred times as productive as the workers Adam Smith studied while writing Wealth of Nations.

No worker takes home all of the wealth he produces; the employer always keeps some. (Our bosses don’t hire us so they can just break even.) And government siphons off some of the worker’s productivity in the form of taxes. But the wealth a worker gets to put in his own pocket has always been roughly proportional to the wealth he produces by his labor. By producing a hundred times much wealth as his ancestors, a modern American worker is able to live about a hundred times as well. We use our wealth to pay for all the things we take for granted: ample food, hot showers, clean clothes, homes with temperature controls and electric lights, and on and on.

We owe all this luxury to the technological and economic progress the world has made in a mere two-hundred-thirty-four years, virtually all of which was achieved by entrepreneurs in the United States.

From England to America

In the late eighteenth century England was more prosperous than any other nation because English law enforced contracts impartially, and because England did less than any other nation to impair the creation of small businesses, or interfere with the rights of small property holders. England’s political system allowed ambitious commoners some freedom of action; while in other European nations “an hereditary aristocracy hindered or stifled the spirit of enterprise, thereby holding back national economic development.”2

After 1776, virtually all of the fantastic progress the human race made took place in Great Britain and the United States, until American-style capitalism started to spread to places like Japan in the late twentieth century. In contributions to the world’s technological progress, the United Kingdom is in a distant second place behind the US, and the rest of the world trails far behind the British. What history books call the Industrial Revolution might more properly be called the “Anglo-American revolution.”

By the time the American colonists declared independence, British inventors had already given the world the Newcomen and Watt steam engines, and a whole series of innovations in the production of textiles. Factories were starting to spring up. In 1829 Englishman George Stephenson would revolutionize transportation by deploying a steam-powered locomotive to pull a train of freight cars on a railroad.

It should also be mentioned that London was the banking capital of the world all through the late eighteenth and early nineteenth centuries. British banks would attract capital from all around the world during this time, and make loans to promising businesses anywhere they could be found.

But American entrepreneurs and inventors would soon put their British brethren to shame. During this nation’s brief existence American entrepreneurs, driven by ambition, and allowed to pursue their dreams with minimal government interference, would make the world a vastly better place. In this amazingly short span of time Americans would give the world the telegraph, the telephone, the steamship, automobiles, machine tools, the assembly line, the modern corporation, photographic film, flush toilets, skyscrapers, the electric light; polyphase electric generation, distribution, and motors; television, the recording and motion picture industries, powered flight, the computer, and any number of other world-changing inventions; along with most of the improvements in these technologies over time.

The rest of the world contributed very little real technological progress during the nineteenth and early twentieth centuries. The entire continents of Africa, Asia, and South America; shackled by dictatorial governments and a rigid caste system; could boast few significant contributions to the world’s progress, until a few Asian nations started experimenting with a more capitalistic economic system in recent decades.

And continental Europe hasn’t done much better. In 1860 a Belgian inventor living in France developed a viable internal combustion engine, and in 1897 Italian inventor Guglielmo Marconi demonstrated, in England, a functional radio transmitter; and that’s about it for major technological breakthroughs in Europe in the last two hundred years. (And Marconi borrowed liberally from earlier experiments in wireless transmission by American inventors Thomas Edison and Nicola Tesla; he paid a negotiated settlement to Edison3, and eventually lost a lawsuit brought by Tesla.)

The American Way

What has made Americans so productive? We know it’s not genetics; all of us have ancestors who came from somewhere else. And we know it’s not altruism, either. In his famous 1835 book Democracy in America, French bureaucrat Alexis de Tocqueville accused Americans of “an unbounded desire of riches, and an excessive love of independence.”4 Americans “seek for fortune,” said he, with an “enterprising spirit.”5 Hardly a picture of altruistic public service.

Tocqueville could see that there was a positive side to the financial ambitiousness of the American people. “America,” he said, “is a land of wonders, in which everything is in constant motion, and every movement seems an improvement.”6 “To minds thus predisposed, every new method which leads by a shorter road to wealth, every machine which spares labor, every instrument which diminishes the cost of production, every discovery which facilitates pleasures or augments them, seems to be the grandest effort of the human intellect.”7

But then Adam Smith could have predicted as much. “I have never know much good,” he said, “to be done by those of affected to trade for the public good.” Smith rightly observed that when a businessman focuses his energies on making profits in a lawful manner, “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”8

Most of the American entrepreneurs who brought us the technological miracles mentioned above grew up in poverty, prospered in adulthood, and died rich. They enriched themselves by enriching the world; it’s the American way.

1Adam Smith, Wealth of Nations, Great Minds Paperback Series, pp. 83, 84
2Thomas Sowell, Conquest and Culture, paperback, p. 41
3Robert Conot, Thomas A. Edison: A Streak of Luck, p. 339
4Alexis de Tocqueville, Democracy in America, Bantam classic paperback, p. 342
5ibid., p. 352
6ibid., p. 493
7ibid., p. 558
8Adam Smith, Wealth of Nations, Great Minds Paperback Series, p. 352