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Freedom, Not Government, Made America Great

RGN Montpelier '07When a columnist in the Lakewood Hub edition of the Denver Post advanced the ridiculous thesis that 19th century American progress was largely due to government programs, I just had to respond.

The truth, of course, is that 19th century America was generally a time of minimal government and almost unimaginable (to us) economic freedom.

In the course of editing my response, the Post made some unfortunate omissions and changes. Here is the original response in correct wording:

Freedom, Not Government, Made America Great

By Rob Natelson

* * * *

To rescue a drowning man, you don’t lecture him on why we need water. His immediate problem is too much water. You have to get him out of it.

Today our country is drowning in government spending and debt. Yet some insist on lecturing us about the virtues of government rather than trying to cure the problems created by too much government.

One of the lecturers is Jack R. Van Ens, who argues that government aided 19th century American economic growth, and that therefore President Obama’s government-centered approach is a good recipe for prosperity today. A more objective look at the 19th century shows just the opposite.

It is true that the 19th century was an extraordinary time of economic progress—perhaps the greatest in recorded history.  When the century opened in 1801, electronic appliances were unknown. So were motorized transportation, instant communication, modern medicine, and much more that had become commonplace by century’s end. These innovations created enormous economic benefits. They also facilitated enormous social progress, such as the freeing of slaves and the emancipation of women.

But not all 19th century nations enjoyed this progress. Two far outstripped the rest. They were America and Great Britain. What made them different was economic liberty.

For the white majority at least, 19th century America was a place of almost unimaginable economic liberty. As historian Samuel Eliot Morison observed, in most facets of life government—especially the federal government—was almost invisible. Americans enjoyed freedom to innovate, earn a living, run a business, hire workers, take a job, form contracts, open schools. The regulatory monster state of today simply did not exist.

Today government spends about 40 percent of our economy. If you count spending mandated by regulations, the government share is even higher. But during the 19th century, combined peacetime federal, state and local government spending never rose above 8 percent, and was usually much less. (See http://www.usgovernmentspending.com/spending_chart_1800_1900USp_13s1li011mcn_F0sF0lF0f_Federal_State_And_Local_Spending_In_20th_Century). Yet this was the time of our greatest economic progress.

The 19th century proves that high government spending is not necessary—or desirable— to achieve worthy social goals. Social insurance was offered through mutual benefit societies. The poor were fed by charities and by local governments. Except in the military, mostly private sources provided research funding. Until the latter part of the century, education was delivered primarily by religious and charitable organizations rather than by government. Yet literacy rates exploded.

Of course, you can point to a handful of cases where 19th century government action seems to have helped the economy. Some are even true. But in others, the supposed benefits vanish on close inspection. For example, the Erie Canal—built not by the federal government but by New York State—was quickly rendered obsolete by private railroad development. And the canal’s benefits have to be balanced against the businesses and jobs squelched by the taxes and other costs of financing it.

(Similarly, the next time someone touts the economic “benefits” of light rail, consider also the businesses and jobs squelched by the cost of building and subsidizing it.)

Mr. Van Ens mentions the Homestead Act as a stimulus to growth, and obliquely mentions land grants to the railroads. They were rare cases of an economically-successful government program. But they were programs of privatization: They moved resources out from under the dead hand of government and into the productive private sector.

Nineteenth century America is only one of several historical cases where decentralization of power led to extraordinary human flourishing. Among others are classical Greece, the early Roman Empire, and the Italian and German Renaissances.

Nineteenth century America demonstrates what economists have documented repeatedly: Omnipotent government, like anarchy, produces poverty (North Korea, Cuba). Big government produces stagnation (most of western Europe today).

But small government, when operated by effectively and under the rule of law, is truly a key to abundance.

Rob Natelson