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Five Principles That Made America Greatby Gary North Recently by Gary North: How To End the Federal Reserve System
Assume that you are traveling abroad. You get into a discussion with a foreign national who wants to know what makes America unique. He asks you to summarize the origins of America's success in a sentence or two. What would you say? No matter what you say, if he asked ten other Americans the same question, he would not get the same answers. America is a complex society. Its citizens have widely varying views on what makes America tick. Nevertheless, I have come up with two sentences in eight words. These two sentences encapsulate what makes American society great. (Note: I distinguish American society from the American state.) Here are my two sentences. They are slogans, but these slogans reflect a uniquely American outlook. Live and let live. There is more to America than this. For one thing, there is a widespread religious faith that undergirds these two slogans. If you do not understand this faith, you do not understand America. So, I have boiled down the principles of America into five sentences. These five sentences are five slogans. These five slogans are five principles of a way of life. Taken together, they identify a unique outlook that undergirds a unique way of life: a unique social order. For over 300 years, these five principles have been dominant – uniquely dominant – in America. Here they are.
1. GOD HELPS THOSE WHO HELP THEMSELVES This phrase was made famous by Benjamin Franklin in Poor Richard's Almanack. Anyway, that is the standard view of the origin of the phrase. When writing my Ph.D. dissertation, I found something quite similar in a sermon by Samuel Moodey in 1715, "The Debtors Monitor."
Like so many of Poor Richard's clever aphorisms, this one was likely believed widely by the time Franklin published it in 1757. It was part of the American culture before there was political America. The faith that it reveals is a faith based on God's providence. God operates in terms of ethics. A man reaps what he sows. God sees to this. By its fruit, ye shall know something. God sees to this. No good tree bears bad fruit, nor does a bad tree bear good fruit. God sees to this. All of these are sayings of Jesus. They were widely believed in eighteenth-century America. They announce: "There is consistency between right actions and profitability." This outlook undergirded Franklin's famous aphorism, "Honesty is the best policy." This outlook insists that the world is not random. It is not mechanical. It is also not organic. It is at bottom ethical. There is predictability between ethical cause and economic effect. This confidence in ethical cause and effect still prevails in the United States. This is why the public was enraged over the bailout of the big banks by the Federal government and the Federal Reserve System in late 2008. They saw this as a corrupt bargain, sacrificing the interests of the taxpayers for the benefit of super-rich bankers. Voters believed that the banks had pursued high-risk profit at the expense of the depositors' safety. Their suspicions were correct. That was "moral hazard" in action: faith in a government bailout encourages large financial organizations to pursue profit. "Heads, I win; tails, I still win." It is worth noting that this is called "moral hazard." Without this widespread faith in the underlying trustworthiness of ethical cause and effect, people would be tempted to pursue profit by means of unscrupulous behavior. Honesty would not be the best policy. Any loss of faith in ethical cause and effect undermines trust. A loss of trust in turn undermines social cooperation: the division of labor. The basis of modern prosperity would break down.
We are seeing a loss of faith in ethical cause and effect. So, the government steps in and promises: "We will make things right. We will restore justice." Then it bails out the biggest banks. 2. MIND YOUR OWN BUSINESS This has two meanings. Americans believe in both. First, everyone should pursue his own business, conceived in the broadest sense. Everyone who is capable of working should work. Americans are hard workers. They take shorter vacations than any other industrial work force. They try not to waste time. The word "goldbrick" in the military is a term of contempt. The word "slacker" is another. Americans honor the guy who finds ways of working fewer hours on his assignments. That is seen as working smart. But Americans don't respect the man who retires to do nothing. (Note: golfing is not seen as doing nothing. It is seen as a challenge – a never-ending challenge that calls forth greater effort.) Americans retire, but they see this as a reward for a life of hard work and thrift. It is earned. This outlook rests on principle #1. Because the Lord helps those who help themselves, the hard-working person is seen as part of a productive economy. This economy rests on the combination of God's providence and hard work. While Adam Smith's famous invisible hand persuaded some intellectuals for a century or so, 1776–1875, the general public assumed that there really is an invisible hand guiding the process of productivity. This legitimized every man's labor. The other meaning of "mind your own business" is a resentment at those who interfere. If someone has no authority to interfere, then the typical American thinks he should keep his mouth shut. "It's none of your business" means that the do-gooder should look to his own affairs. Jesus said the same thing: do not try to remove the mote (speck) in your neighbor's eye before you remove the plank in your own eye.
Until the era of the New Deal, Americans had this attitude regarding civil government. They did not have any love of, or toleration of, the nanny state. Only in recent decades have Americans learned to be subservient to bureaucrats. This marks a major break in American history. In 1775, a flag with a picture of a coiled rattlesnake bore the slogan, "Don't tread on me." It was adopted by the first Marines in 1775. South Carolina adopted it as the state flag within a year. The idea that everyone should mind a business of his own, while minding his own business, is an old one in the United States. It is inherently anti-bureaucratic. It is increasingly on the defensive. The nanny state is on the offensive. 3. LIVE AND LET LIVE This is an extension of "mind your own business." It accepts the legitimacy of any person's hard work. It reflects an attitude of acceptance of the other person's way of life. In earlier decades, it rested on the assumption that the other man "carried his own load," "paid his own way," and "took responsibility for his own actions." This meant that he was a productive member of the community. Poor Richard put it this way: "He that is good for making excuses is seldom good for anything else." This outlook recognized the legitimacy of each individual's contribution to society. As long as he did not hamper other men's work, he was to be left alone. This is the heart of the doctrine of laissez faire. "Let us alone" implies "live and let live," and vice versa. As in the case of "mind your own business," as the state has extended its subsidies, it has extended its control. People are less willing to accept the premise of "live and let live" when they are taxed to finance the other person's lifestyle. They are more ready to mind the other person's business whenever he is seen as the recipient of something for nothing. The growing acceptance of the legitimacy of political plunder has undermined principles 2 and 3. The problem is the visible hand. The state tells people what to do. It taxes successful people and rewards unsuccessful ones, especially senior executives of very large banks that should have been allowed to go bust. The nanny state is the bailout state. As the increasingly messianic state had steadily replaced God as the protector, it has replaced Him as the director.
Then, in 2008, the visible hand got palsied. "Live and let live" works only when it is not "live and let live at my expense." Faith in the politics of plunder has steadily replaced men's confidence in both versions of the invisible hand. It has therefore displaced the older outlook. The messianic state has become the do-gooder state, or the nanny state, or the caretaker state. 4. LET'S MAKE A DEAL If there is a single characteristic feature of the American in history, it is this one. This is the legendary Yankee. This Yankee was the person who knew how to cut costs, increase output, and offer a better deal. His enemy was his do-gooder Yankee neighbor who wanted to interfere in everyone's business. One Yankee was a ship owner who traded in slaves in the eighteenth century. The other became an abolitionist in the nineteenth century and a Social Gospel meddler in the twentieth. The second Yankee has been replacing the first one for almost two centuries. Americans' love of the deal made America a haven for small businessmen. Immigrants prospered. The Jew with his push-cart, the German with his craft, the Armenian with his rugs, the Scot with his invention, the Dutchman with his farm implements: everyone had a little money to invest and projects that needed an infusion of capital. There were deals to be made. If someone wanted to mind the other man's business, he could . . . for a price. The extension of the limited liability corporation in the late nineteenth century was to business what church trust papers had been for religion in the nineteenth century. America made extensive use of both. No society in history ever made more effective use of both. Churches and businesses conquered a continent from 1803 to 1898 – with a lot of help, geographically speaking, from the Federal government, which bought a third of the nation from Napoleon, who could not defend it, and stole the other third from Mexico, which could not defend it. The French got to the interior in third place. The Spanish got to it second. The native Americans got here first. Why couldn't they defend their territory from the invading immigrants from the Atlantic coast? Because there were too few of them. Why? Because their people were not equally committed to the five points – above all, to "let's make a deal." 5. OUR KIDS WILL HAVE IT BETTER There has been a bedrock optimism of Americans from the beginning. It pervades the entire social order. The immigrants hear about it, and come. Then they adopt it. I think of the Jews, who lived for millennia by means of this slogan: "It could be worse." I think of the Armenians who had lived for centuries under the Turks, and who wanted a way out. So did the Irish. So did the Poles. Every group had some cloud hanging over it. Then, family by family, they arrived in the land of the silver lining. There are always clouds, but in America, they were equal opportunity clouds (except for Africans, who did not come voluntarily). "It could be worse" became "it will be better." That changed the character of life in the United States.
There was no guarantee of immediate success. There was only a chance to make a few deals, so long as you lived and let live, minded your own business, and helped yourself so that the Lord might help you. "My children will have it better." Everyone believed this, and most of them saw it come true if they lived long enough. People saved. They cut costs, worked long hours, hustled, did deals, took risks, and sent their kids to school. They had great faith in formal education. That became the great lure, the baited hook. The government took advantage of this dream of social mobility through education. The battle for control over the public schools began in the 1840s and has never ceased. The schools today are steadfastly opposed to God, business, individuality, and deals. They do retain official faith that it will be better for the kids, but their failure to deliver since the mid-1960s has eroded confidence, beginning with the teachers. My generation could see the shift before it hit a decade later. We watched Rebel Without a Cause. We watched Blackboard Jungle. We saw that high school was becoming more of a battlefield than an armory. A decade later, the decline began. It has not been reversed. It took three decades for the new reality to set in. But, over the last decade, about half of Americans have come to the conclusion that their children will be no better off. The only exception are Hispanics. They remain optimistic. This is a major change in the United States. As faith in the future has waned, government has gotten bigger. The Federal deficit is now gargantuan. No one seriously expects this to change. But it will change, when lenders will no longer lend.
The standard belief is this: "Our kids will have to pay off this debt." No, they won't. They will default. It's the oldsters who will pay the price of their own folly. This is as it should be. But, meanwhile, Americans have grown skeptical about the American dream: that our kids will be better off than we are. CONCLUSION The five principles of America are being challenged. They are not dead yet. They still characterize Americans. But the older confidence in them is waning. As the government has grown, Americans have shifted their trust to government. "The government helps those who fail to help themselves." It does so by taxing those who succeeded. In banking, this is called moral hazard. This faith in government is now visibly waning. The government has been unable to deliver the goods. Government rests on a set of different principles.
There is a war of religious confessions between these rival sets of five principles. It looks as though the government's set is winning. But this will end when Washington's checks bounce, or fail to buy much.
It will end when the kids say, "We won't pay off the debts our parents ran up in our name." It will end. There will be enormous pain when it ends, until this nation goes back to the original five principles. Don't get trapped in the transition.
March 12, 2011 Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible. Copyright © 2011 Gary North
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It
will end when lenders tell Washington: "No more loans at low, low
rates."