Is There a Breaking Point in the 2008 Financial Crisis?

Law & Liberty‘s editor Brian A. Smith talks with Samuel Gregg, about his new book The Next American Economy.

Brian Smith:

Welcome to Liberty Law Talk. I’m the editor of Law & Liberty, Brian Smith. Joining me today is my friend Samuel Gregg. Sam is a Distinguished Fellow in Political Economy and Senior Research Faculty at the American Institute for Economic Research, as well as a contributing editor for Law & Liberty. He’s the author of numerous books, including the subject of our discussion today, and has just released The Next American Economy: Nation, State, and Markets in an Uncertain World. Thank you for joining me, Sam.

Samuel Gregg:

Brian, it’s always good to be with you, and good to be on the other end of the podcast.

Brian Smith:

Yeah, I thought you might enjoy that. So longtime Law & Liberty readers might already know the answer to this question, but I wanted you to talk some about what led you to write this book.

Samuel Gregg:

Well, as the title suggests, The Next American Economy: Nation, States, and Markets in an Uncertain World, America is very much at a crossroads right now when it comes to its future economic direction. We have a choice, I think, really between what on one hand I call a type of state capitalism, which is essentially extensive government intervention in the economy via protectionism, industrial policy, et cetera; or, we have a choice of moving in a free market direction. And by free market, I mean more than just markets. I mean all the institutional and cultural underpinnings of that type of economic system, which I think has assumed a particular form in the United States. So there’s that big choice, I think, that is increasingly laying before us. At the same time, as you know, there are many debates about this that are occurring on the left and on the right, and between the left and the right. Traditionally in much of American politics, these debates have fallen more or less along left/right lines. But one of the interesting things about this particular debate is most of the heat and lies about this debate that is occurring is occurring on the right, which is an interesting phenomenon, because at least since the 1980s, up until I would say around about the mid 2000s, the right in America was more or less behind the case for free markets. Now that is no longer the case. On the right you have people like myself. We very much believe in the case for markets and why they’re important; not just economically, but politically and culturally for the United States. And then you have others who are arguing in favor of using a very big state to intervene in the economy and specific sectors of the economy to try and deliver economic outcomes that would be different than what would otherwise be delivered by markets. The wider context of all this is that these economic debates are occurring in a context in which it’s not the 1980s anymore. We’re living in a very different set of geopolitical and domestic political arrangements. Those of us who believe in markets and those who read the book will discover that while I recognize some of the problems that people on the other side of this debate are pointing to, I think their diagnoses are often wrong, and I think certainly their solutions are very wrong. It’s very clear to me that those of us on the free market side cannot talk and act and think as if we are living in the 1980s. So much has changed since then and up until now. The free marketers don’t adjust the way they argue, not so much the content, but the way they argue, and the narrative they present their arguments for markets in will lose this very important debate, and I think America will be worse off for it. So that’s why I wrote the book. The first part is really trying to set the political scene, then go on and explain why protectionism and industrial policy, but also this phenomena of stakeholder capitalism, which we’ll probably say more about later, why these are very bad alternatives for America. Then I try and outline what I call a creative nation, a competitive nation, and a nation that’s a trading nation as the alternative. But again, wrapped up in a particular narrative that I think goes back to the American founding in the American experiment, because if these arguments are not made in this type of way with this type of context and with that narrative, the case for markets will increasingly lack legitimacy in the United States. So it’s not just a series of economic problems we’re dealing with; we’re dealing with some serious political challenges as well.

Brian Smith:

So speaking of politics. I mean, I agree with you completely that all of the really interesting stuff being said right now is on the right about this, but what I’d like to hear is your story of how conservatives got here, conservatives here understood as national conservatives. Where did that movement and its associated industrial policy advocacy come from? And what do you think the best case on their side is? Clearly, you disagree with it, but one of the things I thought was interesting about the book is how you tried to unfold some of the ways they fell into this position. So why don’t you tell our listeners about that and sort of unfold this narrative. Where do you think this came from?

Samuel Gregg:

One of the things I’ve tried to do is to give as fair a case to the other side as possible because I don’t like producing straw men and tearing them down, because frankly, that’s what the other side do on these topics for the most part. But what I think if one is going to give the best sort of analysis of how this happened, how we saw so much of the right move in the direction of economic interventionism, I think it goes back to, first of all, the 1990s when we saw people like Pat Buchanan come to the fore and start arguing that free trade and trade liberalization had had deleterious social effects upon the United States. Many of the arguments we’re hearing today were made by people by Buchanan in the 1990s. And remember, he ended up basically derailing George H. W. Bush’s hopes of a second presidential term. So there was a sense within much of the country, particularly on the right. Many people started to view markets and economic globalization as not being in America’s long-term interest. So that’s one background. Another background, which is an even deeper background, is that trade issues have been part of American political debate right from the very beginning of the republic. I think we often forget that. But in the 19th century, slavery of course was the biggest political dividing point in the American body politic, but tariffs and trade policy came a close second after that. Differences about trade policy split North and South. It split parts of the North, parts of the West, parts of the East. It was one of these dividing points that split the country regionally, sometimes even within particular states, and even within the major political groupings that crisscrossed the country. So in many respects, we are going through the same types of debates that we’ve had in America for a very long time, and that precede Pat Buchanan and his outbreak, if you like, of economic nationalism in the 1990s. Fast forward a few years, and what do we find? Well, I think if one is going to look for a breaking point, for many people on the right when it comes to the case for markets, it’s the same breaking point that affected a lot of other Americans, and that was the 2008 financial crisis. Now, I could give you lots of reasons here why I think that crisis had far less to do with the private sector and far more to do with bad regulation, regulations that incentivized people to behave badly, excessively low-interest rates from the Fed for too long, the government essentially having a type of pseudo monopoly of the housing market, et cetera, et cetera. We could go through all that, but unfortunately, that doesn’t matter.

Brian Smith:

Because they’re government failures.

Samuel Gregg:

They’re government failures, but the problem is that the narrative that, one, was that this was a crisis of capitalism, of American capitalism, that there was something fundamentally wrong with the economic system that many people identify as being quintessentially American. In fact, we know that people in powerful positions in China watch this crisis very closely, and they concluded that the capitalist model was flawed in some fundamental ways and that China needed to avoid some of these problems, which is precisely when China started moving away from what had been a relatively limited economic liberalization, much more back in the direction of a state-centric economy, which is more or less, I think, what modern China is now today. So that, of course, I think the financial crisis really shattered a lot of people’s confidence in the long-term benefits of markets. Many conservatives looked around and said, “Well, we need to rethink the role of the state in the economy. And we’re also not sure whether economic globalization has been as beneficial as people had hitherto supposed for the United States. There must be other ways.” When you add to that a good number of conservatives concluding that the administrative state is here; we haven’t really done much to take it down. Maybe it’s time we should start using it for pursuing what we believe is in America’s best economic interests, and that means using state power to try and achieve that, which I happen to think is more or less moving in the direction of how progressives think about America and the role of the state, et cetera.

Brian Smith:

Which explains things like Compact Magazine in some ways.

Samuel Gregg:

It explains many things. It explains the shift away from markets that you see on the part of a good number of hitherto market-friendly magazines. You mentioned Compact, which of course is a new magazine, but you can look at others such as First Things for example, which now I think it’s fair to say takes a more skeptical view of the role of markets. Another thing which I think is also driving some of this is that America clearly has some serious social and cultural problems, whether it’s drug addiction; whether it’s things like young men who won’t work, don’t want to work and won’t work; whether it’s things like declining birth rates; whether it’s concerns about the implications of immigration for national sovereignty, et cetera, et cetera. All those social and cultural problems, and some of them are actually real problems. The fact that young men are not working is a real problem. The levels of drug addiction, levels of family breakdown, these are real problems. There’s no doubt about that. But many conservatives have apparently concluded that the causes of these problems are primarily economic. They often associate these things, for example, with trade liberalization, which they would argue has emptied out manufacturing and created rust belts, et cetera. And I happen to think that’s all false, but that’s the narrative that has established itself on large parts of the right and parts of the left as well. Many people on the right have concluded that this is primarily an economically caused problem, and therefore we need to use the state to engineer economic solutions that will fix these problems. Now again, I happen to think that that’s a highly economistic explanation of these problems. I think the economy has relatively little to do with these things and much more to do with the social and cultural changes that flowed from the 1960s, as well as things like the disaster otherwise known as Lyndon Johnson’s Great Society programs.

Brian Smith:

Yes.

Samuel Gregg:

So the idea that the state can fix these problems through raising tariffs or introducing industrial policy strikes me as fanciful. But nonetheless, these social problems, I think, are what are driving many conservatives in this type of direction. The last thing I’ll say about all this is that I think free marketers’ responses to many of these questions has been inadequate. What do I mean by that? I mean that the response of free marketers has been to focus heavily on the economic problems associated with the economic arguments being made by people on the right who want protectionism and want industrial policy. Free marketers have gone very hard, and I go very hard at them as well, about they don’t understand trade, they don’t understand basic elements of things like comparative advantage, trade-offs, the damage that protectionism does to an economy. They either don’t know or they ignore the very real systematic and epistemological problems with something like industrial policy. And that’s all fine, and that all needs to be said, but if free marketers are basically saying, “Look, these other things don’t work. They’re inefficient. And what we have to offer you is efficiency and effectiveness,” well, that’s fine, but that’s not a compelling narrative at a time in which politics heavily revolves around questions of identity. Who am I?

Brian Smith:

Correct.

Samuel Gregg:

What community do I belong to? What is my nation? Who is my tribe? Et cetera. If free marketers don’t understand that they need to move their arguments so that they invest them with a narrative that is cognizant of just how much the center of debate has shifted, then they lose. No matter how good the economics arguments are, if you don’t have a compelling narrative that goes beyond the economy and touches upon things that Americans care about, you lose. And that’s one of the things I spend a lot of time in the book trying to do, is to show, look, free marketers have to be very clear that they love America. That you can be in favor of free trade because you love America. And you have to disassociate yourself from the likes of Klaus Schwab and the World Economic Forum who don’t care about America. You have to be very careful in how you make your arguments. You shouldn’t go around claiming that free trade automatically brings peace and harmony in its wake. That’s not true. Adam Smith, by the way, didn’t believe that was true. Neither did David Hume. So in other words, free markets-

Brian Smith:

Or Alexander Hamilton.

Samuel Gregg:

… well, lots of these people really didn’t believe that. Smith is very clear about this, that free trade does not necessarily lead to greater harmony between nations. I think free marketers made a mistake when they started rolling that argument out in the 1990s and early 2000s. George W. Bush used this argument. Bill Clinton used this argument. And to many people it was compelling at the time. It also fit this wider narrative of Francis Fukuyama’s End of History and the Last Man. So we’re all at the end of history; markets and liberal democracy for everyone. This is inevitable. Well, nothing, my friend, is inevitable. And that is another thing.

Brian Smith:

Right. But the other thing which I think you picked up on in this book, which is really fascinating, is the degree to which if you began taking political economy or globalization politics courses in the early 2000s, it was almost spiritual. This understanding that the world was moving in the correct direction because of these free markets, which invariably were defended solely on these utilitarian grounds. I think you’re absolutely right to suggest that it is a persuasive failure on the free markets balance sheet that we have not developed arguments that point out these alignments between trade and a strong…

Samuel Gregg:

America.

Brian Smith:

Yeah, basically it’s failed to identify trade with American excellence. It’s failed to show the ways in which, or create compelling arguments in which morally, trade is the right way to go. It seems that we’re in want of great moral arguments for trade in this respect. This is not a morality of why trade is good; you’ve done that in other books. But it does do this incredibly important element of persuading people why trade and American nationhood are, if not actually just compatible, more than that. They’re absolutely vitally linked together, but we’ll get to that. I also really like the way in which you laid out this sort of course, the 1990s. But one of the things I wanted to draw our attention to next is that you give a lot of examples of industrial policy failures in the book; ones that you will not hear in ordinary discussions right now on the right, I think, generally. But which of your examples do you think best illustrates why industrial policies don’t deliver as promised?

Samuel Gregg:

Well, that’s a hard question, because there’s so many of them. The one I’ll talk about is Japan. I’m old enough to remember at the end of the 1980s, early 1990s, I remember being in high school, going off to college. And I remember that we were all told in the western world that Japan was the future. That Japan, because of its specific economic model, which involved a considerable amount of industrial policy, was going to supplant the United States as the world’s biggest economy. This was reflected in literature.

Brian Smith:

Mm-hmm. I remember reading Rising Sun.

Samuel Gregg:

Rising Sun, right? The film, and that was turned into a film. Or remember the first Die Hard film?

Brian Smith:

Right.

Samuel Gregg:

The Nakatomi Tower, right? So this was a whole narrative of Japan, because it had deployed industrial policy, was going to be extremely successful, this is why Japan was successful, this was why it was going to eclipse America, et cetera. Well, lo and behold, within two or three years, Japan slips into 20 years of sustained stagnation. There are many reasons for that, including bad monetary policies, the effects of the population decline started to have an effect, many other things. But it’s very clear that industrial policy was part of the problem. And what’s more, the Japanese finance ministry in 2002 publicly admitted this. Something along the lines of, “Industrial policy was one of the major reasons why we started to fall backwards in terms of economic progress and development.” Why Japan had slipped into this very long period of economic stagnation. And so when you go back and you look at the post-war history, post World War II history of Japan, you quickly discover that industrial policy was targeted. Those parts of the economy was targeted; it invariably didn’t work. That those parts of the Japanese economy that were incredibly successful were precisely the parts that did not have industrial policy. It’s also very clear that industrial policy in Japan, like all forms of industrial policy, became heavily cronyistic, heavily linked to the ruling liberal democratic party. And where government subsidies and different forms of industrial policy went, tended to go to where particularly powerful politicians wanted them to go, rather than whatever they were saying was going to be the best dollars spent and the best part of the economy. So the more you look at the Japanese story, the more you realize that all the reasons why industrial policy fails are manifest there. Whether it’s the knowledge problem in the sense that governments and technocrats cannot know what is the most optimal place in which they should intervene in the economy; whether it’s the cronyism that is endemic to all forms of industrial policy; whether it’s the ways in which it results in opportunity costs. Because if you direct money in one particular direction, it means you’re not directing money in other directions. I go on and on in one of the chapters about this, and I say that the Japan example is full of warnings to us as to why we should not go down this path. And today, what do we see? We have some people on the right saying, “China is the future. The Chinese model is how we should be proceeding,” at the very moment where if you look carefully at the Chinese economy, it is now really starting to run into some significant problems. It’s partly because of their self-created population problem, but it’s also got a lot to do with the extensive use of what we would call industrial policy throughout the Chinese economy, and the wheels are starting to come off the cart big time. So the parallels between the ’90s and today in terms of Japan and China are extremely striking. What’s interesting, I find, is that when you raise these pretty well-established points of historical and economic evidence, the people on the other side of this debate frankly don’t have answers.

Brian Smith:

No, it’s fascinating.

Samuel Gregg:

They don’t have answers.

Brian Smith:

One of the things that was striking as you were talking, I was remembering the great shift of Tom Friedman away from being a staunch, pure globalism advocate to writing fanboy articles in his op-ed page at The New York Times saying, “We should be more like China.” This happened around the financial crisis in a big way, and the drum beat just never stopped after that. But it is fascinating, the difference between China and Japan here. The one that admitted failure was the regime more like us, and yet we can’t take them admitting the failure of these policies as a piece of evidence. It is pretty striking. But I wanted to shift to the left a little bit more for a moment, because you do spend, and I suppose that the way I take it in the book is, the place where there is the most intellectual energy right now on the left in these economic issues strikes me as the environmental, social, governance movement.

Samuel Gregg:

Ah, ESG.

Brian Smith:

How do you think those imperatives threaten our prosperity, and sort of create a parallel or aligning with the right’s industrial policy advocates to threaten prosperity?

Samuel Gregg:

Well, ESG, DEI, diversity, equity, inclusion, and the broader stakeholder capitalism agenda, which is largely driven from the left these days, although interestingly, some people on the right are saying, “Well, we should have our own version of stakeholder capitalism,” which again, mimicking bad problems from another source. There’s so much one could say about this. One is that when you go down the path of saying, “Profit and shareholder value are not the primary objective of business,” whether it’s a privately owned company or a publicly traded company, when you start going down that path, then I think you start to disrupt in a very bad way the telos to use an Aristotelian term, of what business is supposed to be about. So families exist to raise children. Militaries exist to fight wars. Business exists, its defining characteristic is to produce profit and shareholder value. Otherwise, it’s not a business; it’s an NGO or it’s something else, but it’s certainly not a business. ESG and stakeholder capitalism and DEI all reflect attempts to relativize profit as the purpose of business. We often talk about that the latter as shareholder capitalism. So when then presidential candidate Joe Biden during the, I believe the 2020 election campaign, called “for an end to shareholder capitalism,” what he was really pointing to was not so much socialism or something like that. He’s really pointing to stakeholder capitalism, which deploys tools like DEI and ESG to try and fundamentally change the nature of business, so that business is about serving a range of stakeholders. Now, there’s one way in which you can talk about stakeholder capitalism in a very sensible way. I mean, every business that goes into any community has to assess who are the primary stakeholders in this community? Who do we have to work with, who do we have to deal with if we want to have a productive presence here and we’re able to make money? No business can ignore those sorts of things. But that’s very different from saying, “We actually have to include all these groups and peoples in our decision making process so that we can realize all these other goals besides just profit.” ESG and DEI are the tools that are typically used to do this. The effect is, I think, to try and fundamentally change the nature of business. You end up with businesses becoming and acting and sounding like left wing NGOs. And this of course is infuriating. It infuriates me because it is fundamentally destroying the telos of business. Destroying the telos of business as profit is makes no sense. It’s like saying, “Well, we’re going to turn the family into a business.” I mean, particular organizations have their telos, and things get very messy and bad when you try and move them away from that. The left, I think, see this as a way in which they can basically transform American capitalism from within. So you keep boards of directors, you keep CEOs, you keep the management structures. But the people you employ, the characteristics that you ascribe to them, that you say you want from them, the stated goals of the business, all that changes in a very negative, in my view, a very negative way so that businesses are not behaving like businesses; they’re behaving like NGOs. That is bound to have some very serious economic effects. It’s also going to have some very negative political effects. Because the other side of politics, the right, will say, “Well, okay, if business is in bed with the left, then why should we care about free enterprise? Why should we care about protecting business from excessive regulation? Why should we care about those who tell us we shouldn’t be using state power to try and deal with these types of problems?” Now, I happen to think that using direct intervention or even antitrust law to try and deal with this problem coming from the left inside the American business community is a very bad idea. But much of the business community has set itself up now for being a target from some people on the right. And, they’ve been set up in this position by people on the left who, by the way, have no particular interest or concern for markets and capitalism. They’re not doing this because they’re trying to forge some sort of new consensus in favor of markets. No; they’re trying to change the nature of American capitalism so that it’s not really American capitalism anymore. Instead, it looks much more like a 1970s European social democracy. Over, which of course, is laying a fair amount of what would be called corporatism, the idea that you had government, business, and it used to be unions working together to sort of decide, make all the decisions, to make all the requisite policies that they decided are needed. Which, of course, leaves lots and lots of people out of the political equation, pushes people out of markets, and creates all sorts of very negative consequences for the economy and the society as a whole. But that’s the sort of mentality, I think, that’s driving some of the stakeholder capitalism. And it’s profoundly anti-market. It’s profoundly anti-market, and it’s profoundly limited government. I think some businesses have gone down this path because they think, “Well, if we don’t do this, it’s going to get regulated for us, so let’s preempt it.” Well, guess what, corporate America? You are already starting to be regulated along these lines. The SEC has moved in this direction. Numerous government agencies are moving in this direction already. So if you thought you were protecting yourselves from potential regulation, you’ve made a serious misjudgment and you’ve let the enemy inside the castle, which leaves you in a much weaker position to fight back.

Brian Smith:

One of the things that strikes me is all roads, in this sense, are leading back to stronger corporatism, which shifts all the incentives in the market in ways. And of course, it’s still sort of a market, it’s just a market with very uneven rules for people sort of outside the corporatist game versus those inside of it. Now, I wanted to quote one thing that you said in the book and ask a question about it. So about midway through, you write, “Individuals can be entrepreneurial in many spheres of life. That includes bureaucratic empire making or securing privileges from governments. Many crony capitalists are superb entrepreneurs in so far as they see opportunities for regulatory capture that others don’t.” And so the question that’s right before us, I think, is what do you think it would take to shift folks that are, or have been brought up in, a corporatist environment into seeking genuinely entrepreneurial creative endeavors? Now obviously there’s probably a policy piece, but are there other pieces that can shift things in a more beneficial direction?

Samuel Gregg:

Well, let’s talk first of all about the policy piece. It seems to me that this is partly a question of incentives and regulation. If the incentives in a given economy line the direction of cultivating favor with legislators and governments so that you get what you want and you get to block out potential competitors and potential entrepreneurs, if all the incentives lie in that direction, it’s highly probable that more and more American businesses and people of an entrepreneurial mindset will move towards those incentives. What that tells me is that we need to change those incentives so that we shift incentives back in the direction of satisfying consumers, providing consumers with goods and services, and away from engaging in capturing parts of the economy that you then rigorously defend with your friends in the government from all potential competitors. How do we shift the incentives in this regard? Well, it seems to me that that corporatism depends very heavily upon a big state, lots of regulation, lots of intervention in the economy. The more you wind back the capacity of legislators and governments to offer business leaders goodies, so to speak, the more incentive there is for them to start looking back at the people that they should be serving, who of course are consumers. What’s needed in policy terms is a restoration of consumer sovereignty. Consumer sovereignty. This was Adam Smith’s key point when he was critiquing the mercantile system of his time, which operates very, very much like a sort of cronyist set of economic arrangements. Adam Smith said that the purpose of the economy is consumption, which means you have to satisfy consumers. Because it can’t be production. You don’t consume in order to produce; you produce in order to consume. And when you make production itself the end of the economic exercise, then you end up with lots of inefficiencies. You have businesses that operate because they’ve just operated this way for a long time, and they have friends in government who help them and protect them, et cetera. That’s a very negative situation to be in. So we desperately need to restore consumer sovereignty, and we do that by reducing the size and scope of government and regulations, so that you shift the incentives of businesses back to satisfying consumer wants and needs. But you’re pointing to something beyond policy, though. You are talking about really the normative case for these things, and why we should care about markets and present markets as being much more than just the most efficient economic system. There’s all sorts of things we can do in that regard. We can talk about the different types of freedoms that commercial liberty gives us, the ways in which a market economy allows people to use their creativity in particular ways that serve other people rather than those who happen to be well connected, et cetera. But certainly in the case of the United States, I think free marketers really need to show that the case for the market, it’s about efficiency, it’s about effectiveness, but it’s also because it’s good for the United States. It’s good for 330 million Americans. It’s good not just because it’s economically good, it’s also part of who we are as a people. And that’s one of the things I’ve tried to do in the book is to show just how deeply woven into American sense of at least the founding and the American experiment in ordered liberty, just how deeply connected that is to the type of economic system that we have in the United States, which is very different in many respects from similar manifestations of capitalism in the rest of the world. That’s the message I keep hammering away at to my fellow free marketers. If we don’t change the narrative, if we don’t make it very clear to Americans that the free market is not about this sort of opaque, no borders, a borderless world utopia, everyone trades freely, endlessly. It’s not about that. Trade is wonderful. Free trade is good, domestically and internationally. But if you are interested in winning hearts and minds, you’ve got to think about how you argue these things. My hope is that this book will help a lot of free marketers to understand how we can do this better.

Brian Smith:

I wanted to finish up by pointing directly to this. You conclude, as you say, by pointing toward this new way of thinking about things, but it’s actually an old one, as you point out in the book. Now, “A lot hinges,” you say, “on framing our rhetoric around convincing people that America needs to be understood as a commercial republic.” Can you expand just a little bit more on this point? Why is it important that we understand ourselves in this way? What are a couple of the key touchstones that ought to animate the way we talk? And by we here, I mean journalists, educators, people who are engaged in forming citizens. What are some of the key touchpoints that would do this?

Samuel Gregg:

Well, there’s a lot. So first of all, it’s very important, I think, if you go back and you read key founders, key documents that they wrote, speeches that they gave, it’s very clear that most of them thought that America’s future lay as a commercial republic. Now, there was a debate. We should remember that.

Brian Smith:

Absolutely.

Samuel Gregg:

There was debate in the founding about, let’s call it, the future political economy of the United States. There were people, Thomas Jefferson is maybe the most well-known, who wanted to see an America in which the economy was essentially focused around agriculture, small farms, sort of yeomen farmers, et cetera. That’s sort of Jefferson’s view, because he saw this as reminiscent of classical Greece and classical Rome. He was worried that commerce could be corrupted. But then there are lots of other American founders, and you find this particularly in The Federalist. This is what I found particularly interesting. If you go through The Federalist Papers, the vision that emerges is of America as a commercial republic. By republic they mean certain forms of government, self-government of individuals, self-government of the nation. But they also had virtues in mind, that there were certain virtues that were very important for being a good person, obviously, but were also beneficial in terms of how one went about acting economically. So America is a republic of a particular type, and the adjective commercial that informs that republic tells us a great deal about what people care about, what they do, how they preoccupy themselves, what they think is important, et cetera. A commercial republic is very different from an agricultural type of polity. It’s very different from a mercantilist type of political economy. It’s certainly very different from the type of economic systems that were very prevalent in continental Europe and south of the border, so to speak, that were very prevalent throughout the world at that particular point in time. A commercial republic is one in which people are entrepreneurial, in which competition is everywhere, and people are trading everywhere. And here’s the interesting thing about this. It turns out that commercial republics are not sort of enfeebled by their involvement and immersion with commerce. The argument of many founders, including George Washington in his farewell address, which is where I think you see this vision of a commercial republic particularly well spelled out, for them, commerce was a source of strength for the republic. It bound the people together. It also caused them to look outwards, to look for opportunities, for trading opportunities, for engagement with other nations on the basis of trade. They were very conscious that an economically strong and powerful country would be very hard to take down in geopolitical terms. And that, it turned out of course, to be true. I think one of the reasons why the United States played such an important role in winning World War I and World War II was just the sheer strength of its economy. So this is a very different way of talking about political economy, this idea of a commercial republic. But it’s also important because it chimes with the vision that emerged from the founding of the type of political economy that America was going to have. That matters, because in America, what gives something legitimacy is really how much it can be traced back to the ideals and texts that we associate with the founding. The scholar who I think is very good on this subject is Professor Gordon Wood, a very well-established American historian. Not a conservative; more or less, I’d say, a sort of modern liberal in the way that he looks into the world. But he makes it very clear that the founding contains the ideas and texts that give things legitimacy in America. That’s why things like socialist America or American socialism ring very strangely to us, because it just doesn’t fit the history of the country as it unfolded after the period of founding. The idea of a commercial republic is, I think, a very powerful way for those of us who think that free markets are the most optimal economic set of arrangements to frame the narrative of what we are about. It’s a very attractive one, because it takes good economics seriously, but understands the importance of rooting these things politically and culturally in who we are as a people. Because Americans don’t take their identity from their skin color or from myths that go back hundreds of years. We take our identity from the founding documents. This is one of the things that Gordon Wood talks about all the time. That’s where we find the source of our identity. And in an age in which identity is driving politics so strongly, in many respects, those of us who believe in markets have no choice but to think about how we link our belief in markets and limited government with who Americans are as a people.

Brian Smith:

Well, and I think that’s a really excellent point on which we can conclude. Thank you, Sam, for joining me on the show. You can pick up his Next American Economy in bookstores anywhere.

Samuel Gregg:

And Amazon.

Brian Smith:

And Amazon. So, thank you for coming.

Samuel Gregg:

Thanks, Brian. Always good to chat with you.