Freeman

ARTICLE

The Political Economy of the U.S. Constitution

FEBRUARY 01, 1987 by DWIGHT R. LEE

Dwight Lee is a professor of economics at the University of Georgia and holds the Ramsey Chair in Private Enterprise. He is co-author (with Richard McKenzie) of the book Regulating Government: The Positive Sum Solution, Lexington Books, 1987. The present article is adapted from a chapter in this book.

During the bicentennial of the U.S. Constitution it is appropriate to reflect on the political wisdom of our Founding Fathers. No written constitution in history has established a more durable or successful democracy than has the U.S. Constitution. A full appreciation of the Founding Fathers, however, requires an understanding of the economic as well as the political consequences of our Constitution. Every economy is a political economy and the enormous success of the U.S. economy has been as dependent on our political system as on our economic system.

Indeed, many of the problems that currently plague the U.S. economy are the result of our failure to hold on to the political wisdom that guided our Founding Fathers. Economic knowledge is obviously important in the effort to promote economic growth and development. But no matter how sound our economic understanding, economic performance will continue to suffer until we once again recognize that political power is a force for progress only when tightly constrained and directed toward limited objectives.

The genesis of the political and economic wisdom of our Founding Fathers is found in the fact that they distrusted government while fully recognizing the necessity of government for a beneficent social order. The cautious embrace the Founders gave government is reflected in their view of democracy as necessary but not sufficient for the proper control of government.

The concerns that led to the colonists’ break with Great Britain were very much in the public mind when the Constitutional Convention met in Philadelphia during the summer of 1787. The well known prerevolution rallying cry, “No taxation without representation,” reflected a clear understanding of the dangers that accompanied any exercise of government power not answerable to those who are governed. That the government established by the Constitution would be democratic in form was not in doubt. Unchecked democratic rule, however, was anathema to the most thoughtful of the Founding Fathers. A grievance against English rule rivaling that of “taxation without representation” concerned the sovereign authority assumed by the English Parliament in 1767. In that year Parliament decreed that, through its democratically elected members, it had the power to pass or strike down any law it desired. The colonists had brought with them the English political tradition, which dated back at least to the Magna Carta of 1215: the people have certain rights that should be immune to political trespass regardless of momentary desires of a democratic majority. The concern was not only that the colonists were unrepresented in Parliament but, more fundamentally, that Parliament assumed unlimited power to meddle in the private lives of individuals whether represented or not:

Although the Founding Fathers were determined to establish a government that was democratic in the limited sense that political decisions could not ignore citizen input, they had no intention of creating a government that was fully responsive to majority interests. In many ways the Constitution is designed to frustrate the desire of political majorities to work their will through the exercise of government power. The most obvious example of this is the first ten amendments to the Constitution, or the Bill of Rights. These amendments guarantee certain individual freedoms against political infringement regardless of majority will. If, for example, freedom of speech and the press was dependent on majority vote many unpopular but potentially important ideas would never be disseminated. How effectively would a university education expose students to new and controversial ideas if professors had to submit their lectures for majority approval?

Other examples exist of the undemocratic nature of the government set up by the Constitution. There is very little that can be considered democratic about the Supreme Court. Its nine members are appointed for life, and their decision can nullify a law passed by the Congress and supported by the overwhelming majority of the American public. In a five to four decision one member of the court, insulated from the democratic process, can frustrate the political will of a nearly unanimous public. The arrangement whereby the President can reverse the will of the Congress through his veto power is certainly not a very democratic one. Neither is the Senate where the vote cast by a senator from Wyoming carries weight equal to the vote by the senator from California, even though the California senator represents a population fifty times larger than does the Wyoming senator. The senators from the twenty-six least populated states can prevent a bill from clearing Congress, even though it has incontestable popular support in the country at large. Congress is actually less democratic than just indicated once it is recognized that popular bills can be prevented from ever being considered in the full House of Representatives or Senate by a few representatives who serve on key congressional committees.

It is safe to say that the chief concern of the framers of the Constitution was not that of in suring a fully democratic political structure. Instead they were concerned with limiting government power in order to minimize the abuse of majority rule. In the words of R. A. Humphreys, “they [the Founding Fathers] were concerned not to make America safe for democracy, but to make democracy safe for America.”[1]

Prelude to the Constitutional Convention

Fear of the arbitrary power that could be exercised by a strong central government, democratically controlled or otherwise, was evident from the Articles of Confederation. The Articles of Confederation established the “national government” of the thirteen colonies after they declared their independence from England. There is some exaggeration in this use of the term national government, since the Articles did little more than formalize an association (or confederation) of thirteen independent and sovereign states. While the congress created by the Articles of Confederation was free to deliberate on important issues and pass laws, it had no means of enforcing them. The Articles did not even establish an executive branch of government, and congressional resolutions were nothing more than recommendations that the states could honor if they saw fit. The taxes that states were assessed to support the Revolutionary War effort were often ignored, and raising money to outfit and pay the American army was a frustrating business.

Because of the weakness of the national government, the state governments under the Article of Confederation were strong and often misused their power. Majority coalitions motivated by special interests found it relatively easy to control state legislatures and tramp on the interests of minorities. Questionable banking schemes were promoted by debtors, with legislative assistance, in order to reduce the real value of their debt obligations. States often resorted to the simple expedient of printing money to satisfy their debts. Trade restrictions between the states were commonplace as legislators responded to the interests of organized producers while ignoring the concerns of the general consumers. There was a 1786 meeting in Annapolis, Maryland of the five middle states to discuss ways to reduce trade barriers between the states. At this meeting the call was made for a larger meeting in Philadelphia in the following year to discuss more general problems with the Articles of Confederation. This meeting became the Constitutional Convention.

Achieving Weakness Through Strength

It was the desire of Madison, Hamilton, and other leaders at the Constitutional Convention to replace the government established by the Articles of Confederation with a central government that was more than an association of sovereign states. The new government would have to be strong enough to impose some uniformity to financial, commercial, and foreign policy and to establish some general protections for citizens against the power of state governments if the new nation was to be viable and prosperous. In the words of James Madison, we needed a “general government” sufficiently strong to protect “the rights of the minority,” which are in jeopardy “in all cases where a majority are united by a common interest or passion.”[2] But this position was not an easy one to defend. Many opponents to a genuine national government saw little merit in the desire to strengthen government power at one level in order to prevent the abuse of government power at another level. Was there any genuine way around this apparent conflict? Many thought not, short of giving up on the hope of a union of all the states. There were those who argued that the expanse and diversity of the thirteen states, much less that of the larger continent, were simply too great to be united under one government without sacrificing the liberty that they had just fought to achieve.[3]

Madison, however, saw no conflict in strengthening the national government in order to control the abuses of government in general. In his view the best protection against arbitrary government authority was through centers of government power that were in effective com petition with one another. The control that one interest group, or faction, could realize through a state government would be largely nullified when political decisions resulted from the interaction of opposing factions within many states. Again quoting Madison,

The influence of factious leaders may kindle a flame within their particular States but will be unable to spread a general conflagration through the other States. . . . A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it. . .[4]

A central government strong enough to unite a large and diverse set of states would weaken, rather than strengthen, the control that government in general could exercise.

To the framers of the Constitution weakening government in the sense just discussed meant making sure that government was unable to extend itself beyond a relatively limited role in the affairs of individuals. This does not imply, however, impotent government. The referees in a football game, for example, certainly are not the strongest participants on the field and have limited control over specific outcomes in the game. Yet in enforcing the general rules of the game the decisions of the referees are potent indeed. Government, in its role as referee, obviously cannot lack the authority to back up its decisions. In addition to performing its refer-eeing function, it is also desirable for government to provide certain public goods; goods such as national defense that will not be adequately provided by the private market. Again this is a duty which requires a measure of authority; in this case the authority to impose taxes up to the limit required to provide those public goods which are worth more than they cost.

How to Impose Control?

In granting government the power to do those things government should do, the Founding Fathers knew they were creating a power that had to be carefully controlled. But how could this control be imposed? It could not be imposed by specifying a particular list of government do’s and don’t's. Such a list would be impossibly detailed and even if it could be drafted it would need to be revised constantly in response to changes in such considerations as population size, age distribution, wealth, and the state of technology. Instead, government has to be controlled by a general set of constitutional rules within which governmental decisions are made, with specific government outcomes determined through the resulting political process. It was the hope of those at the Constitutional Convention to establish a political process, through constitutional reform, that brought government power into action only when needed to serve the broad interests of the public.

This hope was not based on the naive, though tempting, notion that somehow individuals would ignore their personal advantages and concentrate on the general advantage when making political decisions. While noble motives are seldom completely absent in guiding individual behavior, whether private or public, the Founding Fathers took as a given that most people, most of the time, maintain a healthy regard for their private concerns. The only way to prevent self- seeking people from abusing government power was to structure the rules of the political game in such a way that it would be costly for them to do so. The objective of the framers was to create a government that was powerful enough to do those things that received political approval, but to establish a political process that made it exceedingly difficult to obtain political approval for any action that lacked broad public support.

There were, of course, some powers that the national government was not constitutionally permitted to exercise. The national government was created by the states, and until the Constitution all governmental power resided in the states. Through the Constitution the states re linquished some of their powers to the national government, e.g., the power to impose taxes on the citizens, establish uniform rules of naturalization, raise an army and navy, and declare war. In addition the states agreed to refrain from exercising certain powers; e.g., the power to coin money, pass laws impairing the obligation of contracts, and pass retroactive laws. Important government powers remained in the states, however, with some of them located in the local governments. Thus the powers that could be exercised by government were limited, and the powers that did exist were diffused over three levels of government. The Constitution further diffused power at the national level by spreading it horizontally over three branches of government, the power of each acting as a check and balance on the power of the others.

The intent of the Founding Fathers was to so fragment government power that it would be extremely difficult for any narrowly motivated faction to gain sufficient control to work its political will. Only those objectives widely shared and consistent with Constitutional limits would be realized through the use of government power. The beauty of the political process established by the Constitution is that it is cumbersome and inefficient. According to Forrest McDonald the process is “So cumbersome and inefficient . . . that the people, however virtuous or wicked, could not activate it. It could be activated through deals and deceit, through bargains and bribery, through logrolling and lobbying and trickery and trading, the tactics that go with man’s baser attributes, most notably his greed and his love of power. And yet, in the broad range and on the average, these private tactics and motivations could operate effectively only when they were compatible with the public good, for they were braked by the massive inertia of society as a whole.”[5] Or, as Clinton Rossiter has said of the Founding Fathers’ motives in creating the system of checks and balances, “Liberty rather than authority, protection rather than power, delay rather than efficiency were the concern of these constitution-makers.”[6]

The Economic Success of the Constitution

It is hard to argue with the success of the U.S. Constitution. The history of the United States in the decades after the ratification of the Constitution was one of limited government and individual liberty, major increases in the size of the U.S. in terms of population and geography, and unprecedented growth in economic well-being. With the major exception of (and to a large extent, in spite of) the unfortunate legacy of slavery and the Civil War, millions of diverse people were able to pursue their individual objectives through harmonious and productive interaction with one another. The opportunities created by the process of specialization and exchange made possible by limited and responsible government motivated an outpouring of productive effort that soon transformed a wilderness into one of the most prosperous nations in the world. The role the U.S. Constitution played in this transformation was an important one and can be explained in terms of both negative and positive incentives.

Broadly speaking there are two ways an individual can acquire Wealth: 1) capture existing wealth through nonproductive transfer activities, or 2) create new wealth through productive activities. A major strength of the Constitution is that it established positive incentives for the latter activities and negative incentives for the former.

The most obvious form of nonproductive transfer activity is private theft. The thief simply takes through force or stealth something that belongs to someone else. A primary purpose for establishing government is to outlaw private theft. But the power that government necessarily possesses if it is to enforce laws against private theft is a power that affords individuals or groups the opportunity to benefit through public “theft” (legal transfer activity to phrase it more gently). The more vague and ineffective the limits on government authority, the less difficult it is to acquire legal transfers through political activity, and the larger the number of people who will find this activity offering them the greatest profit opportunity.

While those who are successful at the transfer game can increase their personal wealth, in some cases significantly, it is obvious that the country at large cannot increase its wealth through transfer activity. What one person receives is what another person, or group, loses. No net wealth is created, and for this reason transfer activity is often referred to as a zero-sum game. In fact, it is more accurately described as a negative-sum game. The attempts of some to acquire transfers, and the predictable efforts of others to protect their ‘ wealth against transfers, require the use of real resources. These resources could be productively employed creating new wealth rather than wasted in activities that do nothing more than redistribute existing wealth. For every dollar that one person receives from a transfer activity the rest of the community sacrifices more than a dollar.

Incentives to Produce

A major virtue of the U.S. Constitution was that it discouraged people from playing the transfer game. By establishing a governmental apparatus that was very difficult to put in motion for narrowly motivated purposes, the Constitution dampened the incentive to use government as a means of acquiring the wealth of others. This is not to say that the government was not used as a vehicle for transfer in the early days of our Constitutional government. Every political decision results in some redistribution of wealth, and no governmental structure will ever completely insulate the political process against the transfer activities of some.[7] But the opportunity for personal enrichment through political activity was limited. Most people found that the best way to increase their wealth was through wealth producing activities.

It was here that the political structure established by the Constitution created positive in centives. Not only did the Constitution establish a climate in which it was difficult to profit from transfer activities, it also created a setting in which productive effort was rewarded. By providing protection against the arbitrary taking of private property (the Fifth Article of the Bill of Rights) people were given assurance that they would not be denied the value generated by their efforts. This provided people with strong incentives to apply themselves and their property diligently. In the words of M. Bruce Johnson, “America was a place where if you were ready to sow, then by God you could reap.”[8]

But the motivation to work hard is not enough for a productive economy. Also needed is information on the objectives toward which effort and resources are best directed, as well as incentives to act on this information_ It is the protection of private property that provides the foundation for a system of price communication and market interaction which serves to guide effort and resources into their most valuable employments. To complete this system the concept of private property rights has to be expanded to include the right to transfer one’s property to others at terms regulated only by the mutual consent of those who are party to the exchange. The lower the cost of entering into transactions of this type, the more effectively the resulting market prices will allow people to communicate and coordinate with each other to the advantage of all. The U.S. Constitution lowered these transaction costs by reducing government’s ability to interfere with mutually acceptable exchanges and by putting the weight of the national government behind the sanctity of the contracts that resulted from these exchanges.

In what has become known as the “contract clause” of the Constitution, the states are for bidden from passing any “law impairing the obligation of contracts. . . .” In the same clause the states are also forbidden from imposing tariff duties on imports or exports (unless absolutely necessary for enforcing inspection laws). In the “commerce clause” the national government was given the power to regulate commerce “among the several states.” Though the commerce clause can be interpreted (and indeed has been in recent decades) as providing the central government the authority to substitute political decisions for market decisions over interstate commerce, the U.S. Congress ignored this possibility until it passed the Interstate Commerce Act in 1887. Prior to the Civil War the commerce clause was used instead by the U.S. Supreme Court to rule unconstitutional state laws that attempted to regulate commerce. After 1868 the Supreme Court made use of the doctrine of due process as expressed in the fourteenth amendment to strike down many government attempts to violate the sanctity of contracts through their regulation of such things as prices, working hours, working conditions, and pay.

in summary, the Constitution created an environment in which private advantage was best Served by engaging in productive positive-sum activities. The specialization and exchange fa cilitated by the Constitutional rules of the game is a system in which individuals can improve their own position only by serving the interests of others. When private property is protected against confiscation, an individual becomes wealthy only by developing skills, creating new products, or innovating better technologies and thereby providing .consumers with more attractive options than they would otherwise have. In a truly free enterprise economy, with the minimum government role envisioned by the framers of the Constitution, the rich are the benefactors of the masses, not the exploiters as commonly depicted. Wealth through exploitation becomes possible only when unrestricted government allows negative-sum transfer activity to become more profitable than positive-sum market activity.

Constitutional Erosion and the Rise of Political Piracy

The early success of the Constitution, and the economic system that developed under it, is reflected in the fact that relatively few people felt any urgency to worry about politics. Political activity offered little return as there was little chance to exploit others, and little need to prevent from being exploited by others, through political involvement. People could safely get on with their private affairs without having to worry about the machinations and intrigues of politicians and bureaucrats in faraway places. But this very success can, over time, undermine itself as a politically complacent public increases the opportunities for those who are politically involved to engage in political chicanery.

Motivating people to maintain the political vigilance necessary to protect themselves against government is always a difficult task. The individual who becomes involved in political activity incurs a direct cost. By devoting time and resources in attempting to realize political objectives he is sacrificing alternative objectives. The motivation to become politically active will be a compelling one only if the expected political outcome is worth more to the individual than the necessary personal sacrifices. This will typically not be the case when the objective is to prevent government from undermining the market process that it is government’s proper role to protect. The benefits that are realized from limited government are general benefits. These benefits accrue to each individual in the community whether or not he personally works to constrain government.

Over the broad range of political issues, then, people quite rationally do not want to get involved. This is not to say, however, that everyone will be apathetic about all political issues. This clearly is not the case, and it is possible to predict the circumstances that will motivate political activism. Often a relatively small number of individuals will receive most of the benefit from a particular political decision, while the community at large bears the cost. Members of such a special interest group will find it relatively easy to organize for the purpose of exerting political influence. The number of people to organize is comparatively small; the group is probably already somewhat organized around a common interest, and the political issues that affect this common interest will be of significant importance to each member of the group.

Of course, the free rider problem exists in all organizational efforts, but the smaller the group and the narrower the objective the easier it is to get everyone to contribute his share. Also, the benefits of effective effort can be so great to particular individuals in the group that they will be motivated to work for the common objective even if some members of the group do free-ride. Not surprisingly then, narrowly focused groups commonly will have the motivation and ability to organize for the purpose of pursuing political objectives.[9] The result is political piracy in which the politically organized are able to capture ill-gotten gains from the politically unorganized.

The Constitutional limits on government imposed effective restraints on political piracy for many years after the Constitution was ratified. There are undoubtedly many explanations for this. The vast frontier rich in natural resources offered opportunities for wealth creation that, for most people, overwhelmed the opportunities for personal gain through government transfer activity. Also, it can take time for politically effective coalitions to form after the slate has been wiped clean, so to speak, by a social upheaval of the magnitude of first the Revolutionary War and then the Civil War.[10] Public attitudes were also an important consideration in the control of government.

Much has been written about how the pervasive distrust of government power among the American people shaped the framing of a Constitution that worked to limit government.[11] What might be more important is that the Constitution worked to limit government because the public had a healthy distrust of government power. For example, in the 1860s the Baltimore and Ohio railroad had its Harpers Ferry bridge blown up many times by both the Confederate and Union armies, and each time the railroad rebuilt the bridge with its own funds without any attempt to get the government to pick up part of the tab. Or consider the fact that in 1887 President Grover Cleveland vetoed an appropriation of $25,000 for seed corn to assist drought-stricken farmers with the statement, “It is not the duty of government to support the people.”[12] There is little doubt that Cleveland’s view on this matter was in keeping with broad public opinion.

The Constitutional safeguards against government transfer activity unfortunately have lost much of their effectiveness over the years. The western frontier disappeared, and a long period of relative stability in the political order provided time for factions to become entrenched in the political process. Of more direct and crucial importance, however, in the move from productive activity to transfer activity has been the weakening judicial barrier to the use of government to advance special interests. The 1877 Supreme Court decision in Munn v. Illinois is often considered to be a watershed case. This decision upheld a lower court ruling that the Illinois state legislature had the authority to determine the rates that could be charged for storing grain. This decision, by sanctioning an expanded role for government in the determination of prices, increased the payoff to political activity relative to market activity and established an important precedent for future increases in that payoff.

In Chicago, Milwaukee and St. Paul Railroad Co. v. Minnesota, decided in 1890, the Supreme Court imposed what appeared to be limits on state regulation of economic activity by ruling that such regulation must be reasonable. Unfortunately, this reasonableness doctrine put the effectiveness of judicial restraint on government at the mercy of currentfashion in social thought. What is considered unreasonable at one time may be considered quite reasonable at another.[13] It was unreasonable for the Baltimore and Ohio railroad to consider requesting government funds to repair its Harpers Ferry bridge, destroyed by government forces, during the Civil War. In the 1980s it was considered reasonable for Chrysler Corporation to request and receive a federal government bailout because Chrysler was not competing successfully for the consumer’s dollar.

Undermining Constitutional Law

The idea of reasonable regulation significantly undermined the concept of a higher Constitutional law that established protections needed for the long-run viability of a free and productive social order. Once the notion of reasonable regulation stuck its nose into the judicial tent it was just a matter of time before the courts began seeing their task as that of judging particular outcomes rather than overseeing the general rules of the game. Illustrative of this changing emphasis was the legal brief submitted by Louis Brandeis, then an attorney for the state of Oregon, in the 1908 case Muller v. Oregon. At issue was the constitutionality of an Oregon law which regulated the working hours of women. The Brandeis brief contained only a few pages addressing constitutional considerations and well over one hundred pages of social economic data and argumentation attempting to establish the unfortunate consequences of women working long hours. It was a judgment on the reasonableness of a particular outcome, women working long hours, rather than constitutional considerations, which were considered of paramount importance and led to a Supreme Court ruling in favor of Oregon.[14] When the constitutionality of legislation stands or falls on the “reasonableness” of the particular outcomes it hopes to achieve, opportunities increase for people to increase their wealth through nonproductive political activity.

In the 1911 case United States v. Grimand, the Supreme Court handed down a decision that significantly increased the private return to obtaining transfers through political influence. Prior to this decision, the U.S. Congress had increasingly moved toward granting administrative agencies the authority to promulgate specific rules in order to implement the general policy objectives outlined by Congress. In United States v. Grimand the high court empowered these administrative rulings with the full force of law. After this decision, the cost of successfully using government authority to transfer wealth decreased significantly as special interest groups seeking preferential treatment could concentrate their influence on a few key members of a particular administrative board or agency. The typical result of this has been the development of symbiotic relationships between bureaucratic agencies and their special interest clients. A special interest group can thrive on the benefits transferred to it by the ruling of a bureaucracy, and the bureaucracy’s budget and prestige will depend on a thriving special interest group demanding its services.[15]

What we have observed over the years is a slow, somewhat erratic, but unmistakable breakdown in the protection the Constitution provides the public against arbitrary government power. Those who want to get on with the task of creating new wealth have much less assurance today then they did in the past that significant portions of the wealth they create will not be confiscated by government and transferred to those who have specialized in political influence.

Maintaining constitutional constraints on government transfer activity is a task requiting constant vigilance. Once a breakdown in these constraints begins, it can initiate a destructive dynamic of increasing government transfers that is difficult to control. Any change that makes it easier to obtain transfers through government will motivate some people to redirect their efforts away from productive enterprises and into transfer enterprises. As this is done, those who continue to create new wealth find the payoff from doing so is somewhat diminished as more of this wealth is being taken from them. This further reduction in the relative return to productive activity motivates yet more people to use government power to benefit at the expense of others. Furthermore, the burdens and inefficiencies created by one government program will be used as “justification” for yet additional government programs which will create new burdens and ineffi ciencies.[16] This dynamic can lead to what is best characterized as a “transfer society.”[17]

Political Piracy and the Transfer Society

Once we start down the road to the transfer society we can easily find ourselves trapped in a situation almost everyone will disapprove of, but which no one will be willing to change. The analogy of piracy is appropriate here. When all ships are productively employed shipping the goods, a large amount of wealth can be generated. But if sanctions against piracy are eased a few shippers may find it to their personal advantage to stop shipping and start pirating the merchandise being shipped by others, even though this reduces the total wealth available. This piracy by the few will reduce the return the others receive from shipping, and there will be an increase in the number finding the advantage in piracy. Eventually the point may be reached where everyone is sailing the seas looking for the booty that used to be shipped but is no longer. No one is doing well under these circumstances, and indeed, all would be much better off if everyone would return to shipping the goods. Yet who will be willing to return to productive shipping when everyone else is a pirate?

Obviously, we have not yet arrived at the point of being a full-blown transfer society; not everyone has become a political pirate. There are plenty of people who remain productive, and they still receive a measure of protection against the confiscation of the returns to their efforts by the constitutional limitations that remain on government power. But there can be no doubt that these limitations are less effective today than they were in the past. This erosion is in large measure due to a change in the prevailing attitude toward government. The fear of unrestrained government power that guided the Founding Fathers has been largely replaced with the view that discretionary government power is a force for social good. If there is a problem, government supposedly has the obligation and ability to solve it. Such public attitudes have a decisive influence on the effectiveness of constitutional limitations.

Simply writing something down on a document called the Constitution does not by itself make it so. And, because of this fact, Alexis de Tocqueville, writing in the 1830s, predicted that the U.S. Constitution would eventually cease to exercise effective restraint on government. According to Tocqueville, “The government of the Union depends almost entirely upon legal fictions.” He continued that it would be difficult to “imagine that it is possible by the aid of legal fictions to prevent men from finding out and employing those means of gratifying their passions which have been left open to them”[18]

But controlling our passions is what constitutional government is all about. In the absence of government we have the anarchy of the Hobbesian jungle in which those who control their passion for immediate gratification-and apply their efforts toward long-run objectives only increase their vulnerability to the predation of those who exercise no control or foresight. Granting government the power to enforce general rules of social interaction is surely a necessary condition if a productive social order is to emerge from a state of anarchy. But without strict constitutional limits on the scope of government activity, the existence of government power will only increase the scope of effective predation. The notion that government can solve all problems becomes a convenient pretense for those who would solve their problems, not in cooperation with others, but at the expense of others. Unlimited government reduces the personal advantage to the productive pursuit of long-run objectives just as surely as does anarchy. In such a case, government is little more than the means of moving from the anarchy of the Hobbesian jungle to the anarchy of the political jungle.

The American experience, however, demonstrates convincingly that with a healthy fear of government power and a realistic understanding of human nature, a constitution can be designed that, over a long period of time, will effectively constrain government to operate within the limits defined by the delicate balance between proper power and prudent restraint. All that is needed to restore the U.S. Constitution to its full effectiveness is a return to the political wisdom that guided our Founding Fathers 200 years ago.

Conclusion

The U.S. is a wealthy country today in large part because our Founding Fathers had what can be quite accurately described as a negative attitude toward government. They had little confidence in the ability of government to promote social well-being through the application of government power to achieve particular ends. In their view, the best that government can realistically hope to achieve is the establishment of a social setting in which individuals are free, within the limits of general laws, to productively pursue their own objectives.

This negative view of government contrasts sharply with the dominant view today; the view that government is the problem solver of last resort and has an obligation to provide a solution to any problem not resolved immediately in the private sector. Unfortunately, this positive view of government is less conducive to positive consequences than the negative view of the Founders. According to F. A. Hayek:

The first [positive view] gives us a sense of unlimited power to realize our wishes, while the second [negative view] leads to the insight that there are limitations to what we can deliberately bring about, and to the recognition that some of our present hopes are delu sions. Yet the effect of allowing ourselves to be deluded by the first view has always been that man has actually limited the scope of what he can achieve. For it has always been the recognition of the limits of the possible which has enabled man to make full use of his powers.[19]

The exercise of government can, without doubt, be used to accomplish particular ends. Neither can it be denied that many of the specific outcomes realized through government programs provide important benefits and advance worthy objectives. But, as is always the case, those accomplishments are only realized at a cost, and the pervasive truth about government accomplishments is that those who benefit from them are seldom those who pay the cost. Indeed, much of the motivation for engaging in political actions is to escape the discipline imposed by the market where individuals are accountable for the cost of their choices.

The escape from market discipline is the inevitable consequence of reducing the constitutional limits on the use of government power. The immediate and visible benefits that are generated by wide-ranging government discretion are paid for by a shift in the incentive structure that, over the long run, will reduce the amount of good that can be accomplished. More, much more, has been accomplished by the American people because our Founding Fathers had a strong sense of the limits on what can be accomplished by government.


1.   R. A. Humphreys. “The Rule of Law and the American Revolution,” Law Quarterly Review 11937). Also quoted in F. A. Hayek, The Constitution of Liberty {Chicago: University of Chicago Press, 1960). p. 474.

2.   Records of the Federal Convention of 1787, Max Ferrand. ed. (New Haven: Yale University Press. 1937) Vol. I, p. 57 and pp. 134-135.

3.   See Herbert J. Storing, What the Anti-Federalists Were for: The Political Thought of the Opponents of the Constitution (Chicago: The University of Chicago Press. 198]).

4.   Madison in Federalist 10. The Federalist Papers (New York: New American Library. Edition. 1961).

5.   Forrest McDonald, E Pluribus Unum: The Formation of the American Republic 1776- 1790 (Indianapolis: Liberty Press. 1979). p, 316.

6.   Clinton Rossiter, Seedtime of the Republic: The Origin of the American Tradition of Political Liberty (New York: Harcourt. Brace and World. 1953), p. 425.

7.   For a discussion of the use of government to transfer wealth throughout American history), see Jonathan R. T. Hughes, The Governmental Habit: Economic Controls from Colonial Times to the Present (New York: Basic Books. 1977).

8.   M. Bruce Johnson. ed., Resolving the Housing Crisis: Government Policy, Decontrol. and the Public Interest (San Francisco: Pacific Institute for Public Research. 1982). p. 3.

9.   According to Milton Friedman. “The most potent group in a democracy such as ours is a small minority that has a special interest which it values very highly, for which it is willing to give its vote. regardless of what happens elsewhere, and about which the rest of the community does not care very strongly.” See Milton Friedman, “Special Interest and His Law,” Chicago Bar Record (June 1970).

10.   Mancur Olson, The Rise and Decline of Nations (New Haven: Yale University Press, 1982).

11.   Gordon S. Wood, The Creation of the American Republic: 1776.1787 (Chapel Hill: The University of North Carolina Press. 1969), especially chapter 1.

12.   Quoted in A, Nevins. Grover Cleveland: A Study in Courage (New York: Dodd Mead. 1932).

13.   In spite of the two decisions just cited, between 1897 and 1937. the Supreme Court made use of the due process clause of the Fourteenth Amendment to reach decisions that served to protect the market process against political intrusions, See Bernard Siegan. Economic Liberties and the Constitution (Chicago: University of Chicago Press. 1981). Unfortunately. this pattern of judicial decisions was not solid enough to prevent these decisions from being ignored or overruled when the political climate and prevailing notions of reasonableness changed.

14.   For a brief but useful discussion of this case see Thomas K. McCraw, Prophets of Regulation (Cambridge: The Belknap Press of Harvard University Press. Cambridge. 19841. pp. 87-88.

15.   The relationship between the U.S. Department of Agriculture and the farm bloc is but one of many illustrative examples that could be cited here. It is clear that those employed by the Department of Agriculture strongly support the agricultural price support and subsidy programs that transfer literally billions of dollars from the American consumer and taxpayer to the nation’s farmers {most of this transfer goes to the largest and wealthiest farmers; see Bruce L. Gardner. The Governing of Agriculture [Lawrence: Regents Press of Kansas. 1981]). It is by expanding these programs that the Department of Agriculture can justify bigger budgets and more em ployees, something it has been quite successful at doing. In 1920 when the farm population was approximately 31 million, the Department of Agriculture employed 19,500 people. By 1975 the farm population had declined to less than 9 million, but the Department of Agriculture had increased its employment to 121.000 people. This trend toward fewer agricultural workers relative to agricultural bureaucrats has continued into the 1980s.

16.   Our Federal farm programs are a perfect example of this process. See Gardner, ibid, Early on, James Madison recognized the possibility of this type of legislative chain reaction. In Federalist 44 Madison states. “that legislative interference, is but the first link of a long chain of repetitions; every subsequent interference being naturally produced by the effects of the preceding.”

17.   For a detailed and compelling analysis of how the breakdown in constitutional limitations on government activity has moved the U.S. away from positive-sum economic activity and toward nega-tive-sum activity, see Terry L, Anderson and Peter J, Hill, The Birth of a Transfer Society (Stanford, California: Hoover Institution Press. 1980).

18.   Quoted in Felix Morley, Freedom and Federalism, (Chicago: Regnery, 1959): pp. 138-139.

19.   Friedrich A. Hayek, Law. Legislation and Liberty, Vol. 1 Rules and Order (Chicago: University of Chicago Press. 1973). p. 8.

ASSOCIATED ISSUE

February 1987

ABOUT

DWIGHT R. LEE

Dwight R. Lee is the O’Neil Professor of Global Markets and Freedom in the Cox School of Business at Southern Methodist University.

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