History

An assumption that dominates American historical studies is that the wealth and prosperity of the country would be much less without the existence of a powerful central government. This theme is but part of a larger, and now international, orthodoxy that larger political jurisdictions, as long as they are "democratic," foster liberty and economic growth while smaller ones stifle it.

In Europe, elites hold up an all-European government as the golden road to a brighter and wealthier future. Others go further, such as Atlantic Monthly correspondent Robert D. Kaplan, and argue that eventual "world governance" by "global elites" is both inevitable and desirable. Kaplan, whose books are read by high-ranking government officials and journalists, believes that free markets, democracy, and liberty shall thrive under a world regime.

The truth is far different. All of history attests that the centralization and concentration of power breed despotism. In the history of European civilization, liberty and civilization have thrived when political power has been dispersed and checked. Contrast the Greek city states with the polyglot Alexandrian empire, the Roman Republic with the world-sprawling Roman Empire, medieval Europe with 20th century Europe. The nature of man being what it is, irresponsible, unchecked power has been, and always will be, abused, and there is no better way of rendering state power oppressive than by concentrating rather than dispersing it.

If your children attend a public or private university in this country, they will be taught that President Roosevelt "saved" capitalism from itself with his New Deal legislative program in the 1930s. They will also be taught as unquestionable truth that the Federalists rescued the fledgling national economy from imminent collapse during the decade following the War of Independence (1780s), a decade ominously described by statist historians (are there any other kind?) as "the critical period." They learn that these years were a tumultuous and tragic follow-up to the Revolution. Without a strong central authority, the country was convulsed and confused by violent internal rebellion, economic stagnation, the petty rule of "bad men" (i.e. local-minded and self-interested), and national weakness in the face of predatory commercial rivals. Into this despairing void, stepped a shining band of broad-minded, far-seeing, disinterested, nationalist leaders who realized the impotent and inept government of the Confederation had not the powers to deal with the crisis or guide the country into the regulated, centrally managed future. Consequently, they led a constitutional revolution which discarded the Articles of Confederation and replaced it with a broad charter of national power, falsely described as federal, that by taxing, regulating, and promoting (i.e. subsidies!) rescued the economy and laid the solid foundation for America's future growth and prosperity. Students graduate thinking that were it not for the federal Constitution, we would all be sitting on the front porch of our cabin spitting tobacco, drinking home-made whiskey, and kicking our dog Blue.

The prevailing historical interpretation of the country under the Articles of Confederation is an example of the harm that has resulted from the ignorance of economics among generations of historians. Let us consider the work of Richard B. Morris, the Columbia University historian, whose book The Forging of the Union, 1781-1789 (1987) is considered the standard history of that decade. Morris ascribes the postwar depression (1784-88) to four causes: the "dumping" of low-cost British goods upon the American market (imagine the gall of those sneaky Brits; you beat 'em in war and then they do this to us?); the closing of the British West Indies and other foreign markets to American goods; an unregulated money supply (it is not clear if Morris thinks the problem was too much, or not enough, money; apparently, he seems to think that only the Solons and Greenspans destined to run the federal government knew the right amount); and the lack of a national government with national taxing and regulatory powers (the horror, the horror).

For Morris, the calling of a constitutional convention was a necessity recognized by nearly all. "Businessmen, mechanics, and artisans witnessed a Confederation government incapable of controlling the money supply, of paying interest on the public debt, or of regulating and encouraging foreign and domestic commerce. Little wonder that these groups recognized the grim necessity for setting up a stronger central government."

The economy was beginning to thrive again in 1788, the year the Constitution was ratified, and Morris naturally awards credit to the new government for the change. "The ratification of the federal Constitution seems to have laid a basis for economic recovery." It never occurs to him that the recession was bound to end sometime, or that its end was due to causes unrelated to the creation of a new national authority.

Our best guides to the critical decade of the 1780s are two of the few American historians who understand economics and are true liberals--William Graham Sumner and Murray Rothbard. Although Sumner was a nationalist and antidemocrat who favored the new constitution for other reasons, he understands as well as Rothbard that the depression of the 1780s was not due to the lack of a powerful central government. Both explain that after the war, there was a great pent-up demand for British goods, which were preferred to all others, including domestic, both for their quality and their cheapness.

There was also an abundance of specie in the country, due to French and British disbursements, the Havana trade, and French and Dutch hard-money loans. However, there was also a large quantity of paper money still afloat. As the paper money was serving as the principal circulating medium, the merchants shipped much of the nation's specie abroad to help pay for their large importations of capital and consumer goods. Lacking credit cards,