The Capitalist Foundations of America

George L. Priest delivered the final Bradley Lecture of 2006-2007 at AEI on May 14. The following is the full text of his prepared remarks.

This is the third time I have been honored to present a Bradley Lecture. All of my presentations derive from my interest in capitalism, the operation of markets, and the relative achievement of markets to politics. My first appearance in this series dealt with differences between social--governmental--insurance programs and private, market insurance, attempting to explain why government insurance programs were largely ineffective in terms of the risk spreading and risk reduction functions of insurance and should rather be considered as targeted redistribution, though often oddly and questionably targeted redistribution. My second appearance in the Bradley Lecture series addressed the issue of campaign finance and attempted to explain why failures in the electoral process--failures deriving from geographical limitations, time limitations, aggregation limitations and intensity of preference limitations--could be reduced by money in the form of campaign contributions.

My talk today, "The Capitalist Foundations of America" is related. The talk is somewhat different from my earlier Bradley Lectures. Those lectures, I believe, contained new ideas. This lecture, in contrast, is synthetic: virtually all of the material that I will discuss has appeared in secondary literature, though in a diverse and unconnected state. The novelty of the talk, if any, is in the emphasis or, rather, the suggested change in emphasis of our understanding of the founding and the basic conceptual genesis of our country.

The writing of the history of our country has been dominated in the past and is dominated today by political scientists and by historians whose principal interests are in politics and ideology. As a consequence, our understanding of ourselves as a nation is generally a political and ideological understanding. To put it briefly, though I will go into greater detail in a moment, this understanding provides:

  • that the initial founding of the country was by religious dissidents--the Puritans in Massachusetts--who immigrated to America seeking freedom of religion in the new land
  • that developments outside Massachusetts were by further religious dissidents--dissidents of the dissidents
  • that, over time, the British colonial regime became increasingly onerous, largely because the colonies were not allowed political representation in the British Parliament
  • that the colonial oppression finally became so politically onerous as to be intolerable--"no taxation without representation," with emphasis on the clause "without representation"--leading to the Revolution
  • that the colonies revolted to create a new Republic, based upon a republican vision of society that treasures political participation a value that spread over time--is skeptical of if not hostile to the pursuit of individual interests, such as through the market, and is dedicated to the principle of the political equality of citizens
  • that the Declaration of Independence announced, most centrally, the principle that "all men are created equal", subsequently made sacrament by Lincoln's Gettysburg Address
  • that the defining values of our country are religious and expressive freedom from the legacy of the Puritans, as protected by the 1st Amendment, and political equality, as embodied in the Declaration, the Gettysburg Address, the 14th Amendment and, in recent times, Brown v. Board of Education

The project on which I'm working, the initial ideas of which form the talk today, takes a different approach. I will try to explain why this political view of the founding of the country, emphasizing the principles of expressive freedom and political equality ignores the extent to which those persons who immigrated to America and Americans since have centrally pursued the value of improving their economic positions and have been devoted to general economic growth. As I shall try to illustrate, the initial founding; the development of the colonies; the Revolution; the drafting of the Constitution; and the history of events thereafter; are dominated by efforts of citizens to improve their economic positions in life, not--or, at best, less so--to enhance their positions as political beings. This is what I mean by "capitalist" in the title "Capitalist Foundations." The foundations of this country were established by people seeking new and better opportunities for their lives--economic opportunities--and who sought the opportunity to employ their talents in the marketplace. The pursuit of religious freedom, of course, was an ambition of some. The desire for greater political control, similarly, was significant, but I will argue significant instrumentally in order to make possible economic advance. To the contrary of the republican view which neglects or devalues economic advance, the defining ambition of the founding of America was to achieve economic improvement.

There are many other definitions of "capitalism," and this has proved a problem in the dominant historiography of the founding. Most historians have little understanding of modern economics and consider "capitalism" in its Marxist formulation: emphasizing the opposing interests of owners of capital from laborers. I reject that definition; it has been rejected, generally, in the history of the country; it has surely been rejected in the modern world. The definition I employ here, to put it simply, is that the founding of America derived from capitalism in the sense that, at each instant in the course of the founding development of the country, the underlying ethic was to advance economic position. Of course, citizens possessed other values and there have been many differences over our history in the conception of advance and in the adoption of means to achieve advance. But advancing economic position through employing skills in the market has been throughout our history and remains the dominant and defining value of our country.

I. The Current Interpretation of the Founding

The dominant interpretation today of our nation's founding is what has been called "the republican synthesis." It derives from the study of the Revolution and of the rhetoric of the criticism of British colonial rule as that criticism escalated into outright revolt. What became the synthesis was initiated in a political interpretation put forth by the historian Bernard Bailyn in his study of political pamphlets written and distributed prior to the Revolution;[1] was importantly advanced by the historian Gordon Wood in his book The Creation of the American Republic[2] which extended the interpretation to the aftermath of the Revolution through the adoption of the Constitution; and solidified when both wrote further important works emphasizing the centrality of republican values to justify colonial revolt.[3]

According to this view,[4] the dominant political theory leading to and justifying the Revolution derived from the increasing characterization of a Britain dominated by political vice and corruption from which a republic embodying virtue must rebel, rather than remain dependent. By this view, politics chiefly represents the expression of power constantly in opposition to a sphere of liberty and right. Politics in Britain were dominated by corruption as reflected in British luxury and pomp, in bloated government existing parasitically on the shoulders of hard-working citizens, and in Britain's selfish and insensitive dominion over the colonies. The nature of British rule threatened to spread this corruption to the colonies. America, in contrast, constituted a new world, a republican world, free of this corruption. Public virtue was essential. A population that was frugal, industrious, and simple could form the backbone of a virtuous republic. According to this view, the general welfare of the public was "the exclusive end of government" requiring the sacrifice of private interests.[5]

Bailyn's and Wood's focus implicitly asserts the Revolution as the central defining moment of the country. The synthesis was importantly extended, however, by Edmund Morgan and others who demonstrated the link between these republican political values and the New England Puritans. Morgan defined what he called the "Puritan Ethic," a set of values of New England Puritans that praised frugality, was distrustful of luxury, and was committed to a renewal of virtue. Like the Germans of Weber's Protestant Ethic, the Puritans believed that God had defined an elect and that one's worldly life would demonstrate membership among the elect. But different from Weber's protestants, the Puritans did not believe this status was demonstrated through economic success. The Puritans, like the rebellious colonists, distrusted luxury, extravagance and avarice and were committed to maintaining virtue in the country.[6]

With Morgan's work, the "republican synthesis" interpretation of the Revolution was extended back to the original founding of the colonies. And my colleague, Bruce Ackerman among others, has attempted to extend the republican idea forward to the present by emphasizing the significance of political and ideological movements such as Reconstruction and the New Deal.[7] By these views, the foundations of our country are political and ideological. The Puritans came to America seeking religious freedom. Their religion incorporated an ethic of frugality, suspicion of luxury, commitment to the renewal of virtue, a dedication to public as opposed to private interest. This ethic continued during Britain's colonial rule. The colonists became increasingly suspicious of British corruption and overthrew the colonial regime to establish a new republic dedicated to virtue and to the political equality of citizens.

There have been critics of the "republican synthesis", though mild critics. Joyce Appleby has suggested that the synthesis ignores economic issues under colonial rule,[8] but her understanding of economics is essentially Marxist in nature, and her critique may be more accurately described as a suggestion that the synthesis be expanded.

As a political and ideological interpretation, the "republican synthesis" at best neglects economic motivations and economic forces, though it is not unfair to say that it devalues them. It defines political commitment as the primary relation of a citizen to the society. And by emphasizing the distrust of luxury, extravagance, avarice and the importance of public over private interests, the synthesis might be thought to be antagonistic to capitalism. I believe this to be a mistake. Although it is too complicated to address in this talk, luxury and extravagance need not be considered as pillars of capitalism. Adam Smith's clever demonstration that the pursuit of self-interest could enhance social welfare has been overemphasized. The key to capitalism as I define it is not self-interest, but enhancing social welfare through the market.

Edmund Morgan's contribution to the synthesis--though this part of his contribution has largely been ignored--is more supportive of the capitalist interpretation What Morgan calls the Puritan Ethic--the ethic that dominated Puritan life and continued to dominate American thought through the Revolution and beyond--is quite consistent with capitalism and markets. This ethic demanded that a citizen be thrifty, frugal and industrious. It insisted that a citizen identify a calling--an employment--and devote that employment to the public good. British colonial rule conflicted with the ethic because the British government was supporting a myriad of officers to regulate the colonies all supported by taking from the citizen through taxes the fruits of the citizen's industry.[9] The Bailyn-Wood formulation of the "republican synthesis" ignores these features.

Thus, the "republican synthesis" focusing upon the centrality of political and ideological commitments of the American citizenry remains dominant. Of course, there are many individual works discussing the economic history of the Founding and of the colonial period leading to the Revolution that do emphasize economic concerns, though none of these works engages the "republican synthesis".

This talk attempts to do so. It will attempt to show that the focus on political and ideological origins of the country ignores the material reasons underlying the Founding, ignores the basis for the expansion of the country during the colonial period, ignores economic grounds underlying the Revolution, ignores important economic concerns that shaped the Constitution, and ignores much of the subsequent development of the country. The talk will consist of what might be regarded as vignettes of American capitalism. I shall attempt to show that economic advance, not the achievement of political equality, is far more central to the history of this country than has been appreciated. Enhancing economic opportunity, not religious and political freedom or political equality, is the fundamental value upon which America has been built. In this short talk, I am forced to paint with a broad brush and I must neglect many important details and nuances. But I hope, however inadequately, to suggest the promise of the approach.

II. Episodes of American History

A. Discovery and Founding

The narrative that defines the pursuit of freedom of expression and political equality as central to the history of the country begins with the Puritans: religious dissidents who immigrated to Massachusetts to avoid religious persecution. The history of the country, however, begins earlier.

Columbus. The continent, from a European standpoint, was discovered by Columbus in 1492. Motivations are difficult to evaluate, but Columbus and his crew did not come to America for the public interest, to create a republic, nor even as employees of his patrons, Ferdinand and Isabella, who might have had such goals. They came for profit. The grant of authority for his voyage provides:

For as much of you, Christopher Columbus, are going by our command, with some of our vessels and men, to discover and subdue some Islands and Continent in the ocean, and it is hoped that by God's assistance, some of the said Islands and Continent in the ocean will be discovered and conquered by your means and conduct, therefore it is but just and reasonable, that since you expose yourself to such danger to serve us, you should be rewarded for it. And we being willing to honour and favour You for the reasons aforesaid: Our will is, That you, Christopher Columbus, after discovering and conquering the said Islands and Continent you shall so discover and conquer; and that you be our Admiral, Vice-Roy, and Governour in them . . . and that you enjoy the perquisites and salaries belonging to the said employments and to each of them, in the same manner as the High Admiral of our kingdoms does.[10]

Cabot. Columbus was not the only explorer of the new land. A grant similar to Columbus's was awarded to John Cabot in 1498 who, Norse aside, discovered what was to become New England. The provisions of the grant to Cabot were different than those of the grant to Columbus. Cabot was dealing with a different Crown which demanded different terms. Cabot had to pay the costs of the voyage himself. The Crown received what was referred as "the lift part of the capital gaine"--i.e., a capital gains tax--on what Cabot found, after deducting the costs of the voyage. But Cabot was awarded the surplus and he bargained to import that surplus free of customs taxes:

Be it knowen that we haue giuen and granted, and by these presents do giue and grant for vs and our heiress to our welbeloued Iohn Cabot citizen of Venice . . . and to the heires of them . . . and their deputies, full and free authority, leaue, and power to saile to all parts, countreys, and seas of the East, of the West, and of the North, vnder our banners and ensignes, with fine ships of what burthen or quantity soeuer they be, and as many mariners of men as they will haue with them in the sayd ships vpon their own proper costs and charges, to seek out, discouer, and finde whatsoever isles, countreys, regions or prouinces of the heathen and infidels whatsoeuer they be, and in what part of the world soeuer they be, which before this time haue bene vnknowen to all Christians . . . Yet so that the aforesayd Iohn, and his sonnes and heires, and their deputies, be holden and bounder of all the fruits, profits, gaines, and commodities growing of such navigation, for euery their voyage, as often as they shall arrine at our port of Bristoll (at the which port they shall be bound and holden onely to arrine) all maner of necessary costs and charges by them made, being deducted, to pay vnto us in wares or money the lift part of the capital gaine so gotten. We . . . granting vnto them and to their heires and deputies, that they shall be free from all paying of customes of all and singular they shall bring with them from those places so newlie found.[11]

The Virginia Colony. While the dominant narrative of America begins with the Puritans seeking religious freedom, the earliest colony in America was Virginia.[12] The first Virginia colonists were not religious dissidents, but Englishmen looking to improve their lives. The colony was financed by Englishmen looking for profit.

The Virginia Colony was a joint-stock corporation through which a small group of English investors obtained a grant from the Crown to establish a colony in Virginia chiefly with the thought of profit from minerals. Cortez had conquered the Aztecs in 1521; Pizarro, the Incas in 1531. The English did not rule out finding an equivalent civilization that had, for the convenience of the conquistadors, already extracted and refined the precious minerals.[13] But there was also the hope that minerals might be present unknown to or not valued by the native "savages." The Virginia Charter granted the Company the authority to settle on the lands, granting to the Crown a royalty of one-fifth of gold and silver discovered and one-fifteenth of copper.[14]

The Virginia Company sought to lure colonists to man the venture by promises of profits as well. The earliest information about the promotion of the venture for colonists is from 1609, though it is likely to have been similar to that issued in 1607.[15] Those that signed on to immigrate to Virginia were promised:

Five hundred ‘reales' for each one, and they will be entered as Adventurers in this aforesaid voyage to Virginia, where they will have houses to live in, vegetable-gardens and orchards, and also food and clothing at the expense of the Company of that Island, and besides this, they will have a share of all the products and the profits that may result from their labor, each in proportion, and they will also secure a share in the division of the land for themselves and their heirs forever more.

According to the terms of the contract, the division of lands and profits was to be made after seven years--somewhat longer than the terms of indentured servitude contracts, discussed below--and that each colonist would own a share equal to a share of an English investor.[16]

As a profit-aspiring enterprise, the Colony proved to be a failure. It was an abject failure when operated, as it was initially, on a communal basis: few worked; the majority died. It is a well-known story, first made prominent by Edmund Morgan, that when the colony shifted the basis of its organization by allocating private property rights, it became more prosperous.[17] No important minerals were discovered, and the venture never recorded a profit. But the deaths stopped and the population expanded.

The Massachusetts Colonies. The founding of the Massachusetts' colonies is significant within the dominant historical interpretation of the country as illustrative of the country's commitment to religious and expressive freedom. The Pilgrims immigrated to New England to avoid religious persecution. Colonies derivative from Massachusetts, such as Rhode Island and Connecticut, were founded by further religious dissidents: those dissenting from the Puritan dissenters.

The actual history is somewhat different. The first Massachusetts' settlers were indeed religious dissenters, but they were dissenters who had fled England on grounds of religious persecution long before their emigration to America. The Plymouth settlers had lived in the Netherlands eleven or twelve years before their decision to emigrate to America. As they calculated whether to leave, they feared that the Netherlands was going to war with Spain, fearing most of all that Spain--a Catholic country even more intolerant than England--might be victorious. But they also feared that, if they established a successful colony in America, Spain might conquer them there.[18] According to William Bradford, in his extraordinary history, Of Plymouth Plantation, the determining reason for leaving the Netherlands was economic, not religious. They possessed religious freedom in the Netherlands; they could not obtain good jobs.

According to Bradford:

For though they saw faire & bewtifull cities [in the Netherlands], flowing with abundance of all sorts of welth & riches, yet it was not longe before they saw the grimme & grisly face of povertie coming upon them like an armed man, with whom they must bukle & incounter, and from whom they could not flye; but they were armed wth faith & patience against him, and all his encounters; and though they were sometimes foyled, yet by Gods assistance they prevailed and got the victorie.[19]

The Pilgrims sent a representative to London to find an investor to support the emigration. They found investors, established a joint-stock company and, indeed, took patents from the Virginia Company to establish their rights to the colony.[20] The 1620 grant to the joint-stock company awarded them rights "to erect and establish fishery, Trade and Plantacion" within the designated territory.[21] The Pilgrims had planned to establish their colony near the mouth of the Hudson River (now New York), but their ship captain missed the site and arrived at Cape Cod. The weather was thought too precarious to allow moving south, and so they stayed at Plymouth.[22]

The basic history is similar to that of the Virginia Colony. All profits from the colony were to be reinvested--retained earnings--for seven years. But the colony never proved profitable for its investors. Like Virginia, the colony's initial communal form of organization was unproductive. After individual property rights were assigned, productivity increased and the death rate declined.[23]

Immigration Part I: The Early Years: Indentured Servitude, 1630-1680. The Virginia Company colonists and the Pilgrims and, later, Puritans, were the first immigrants to America. Their successes, however modest, encouraged more. From 1630 to 1680, it is estimated that roughly 600,000 persons emigrated from Europe to America. It is a truism, though a neglected and ignored truism, that immigrants leave their home countries, often at considerable personal and economic cost, only if they believe their lives will be better in the new land. I shall address this point again at the end of my talk today.

Given the uncertainties of settling in America in the 1600s, the demand for improvement in economic position and the belief that America could provide that improvement had to be substantial. During these early years, the most common ground for immigration to America was not to escape religious persecution nor to gain political rights, but to improve labor opportunities. The point is established by the fact that, during the period 1630 to 1680, the most common basis for transport to America was under a contract of indentured servitude.

There was a lively market in England during this period for indentured servants. To get a sense of the nature of the market and of the economic attraction of the colonies, the cost of transport at the time has been estimated as roughly equal to five months wages for an agricultural laborer in southern England.[24] In return for the costs of passage, the prospective servant would enter a contract with a servant broker promising to work at the dominion of a master, identity unknown, for a specific term of years, typically four. During the period of servitude, the servant would receive food, drink, clothing and shelter. Some contracts provided for lump sum payments--called "freedom dues"--at the end of the period of servitude, either in cash, clothes, food or a plot of land. The contracts were more complicated if bringing a family was involved: some contracts included promises that children would be educated. Some contracts specified work at a given geographical area. After passage, the broker or an agent of the broker would sell the contract to an American owner who accepted its terms.

Thus, the typical terms of trade for a cash-short Englishman to gain passage to America as an indentured servant involved gaining the equivalent of five months wages in return for promising to work at the behest of an unknown master for a period of four years. Almost incredibly, the best estimate of early colonial immigration is that 50 to 66 percent of white males coming to America from 1630 to 1680 came as indentured servants.[25]

Internal Colonial Expansion.[26] I have discussed that the original founding of the colonies at large was accomplished typically by for-profit joint-stock companies. What about internal expansion within an established colony? Although not central to the republican narrative of the Revolution, there is a related history of internal settlement in America that emphasizes the communal nature of town building. According to this history, towns were formed by a group of like-minded individuals, who governed the town as a democracy, often members of a single church, with commercial enterprise playing little role in the organization or governance of the town.[27]

It is true that, in the American colonies, some new towns were founded for religious reasons. New Haven, Connecticut, for example, was founded in 1637 by a Puritan minister, John Davenport, who moved his entire congregation to what was then a lightly settled harbor. And, of course, some frontier towns were founded for military reasons, though security and protection are hardly non-economic in nature.

It is not widely known, but an interesting study has described a market for towns in New England, founded by what might be called town entrepreneurs. These are individuals--the study identifies roughly one hundred of them--who, for profit, organized towns and convinced residents of established cities to move there. John Frederick Martin, in his book Profits in the Wilderness, describes the process:

Starting a town was an expensive, complicated affair. People did not simply move to the wilderness and build log cabins. Before that could happen, a great deal had to be done--the site chosen, the General Court's permission obtained, the land purchased from the Indians, and fellow settlers admitted to the group. Then the township had to be surveyed, the survey had to be accepted by the General Court, and the first lots had to be laid out--home lots, planting lots, wood lots, meadow, and swampland. Lots of poor quality had to be augmented by quantity, river frontage had to be rationed, rocky land shared. Roadbeds had to be found, rivers bridged. All of this had to be started before settlers could take up their lands and begin new lives.[28]

According to Martin, most towns were established as a form of corporation with settlers owning shares. Thus, governance of the town was based upon economic ownership, not political citizenship. Although there were variations, the town founder would take the return for his effort--his profit--in the form of town land, later to be resold. Generally, town contracts required shareholders to occupy their land holdings; only the founder was allowed to own land that he did not occupy, unoccupied because, after founding the town, the entrepreneur would move on to found another. Martin estimates that more than half of the 120 to 140 towns founded in New England prior to 1700 were the result of the market abilities of town entrepreneurs.

Let me now turn to the two events central to the interpretation of the "republican synthesis:" the Revolution and the drafting of the Constitution. The literature analyzing these events is vast, and I cannot hope to treat it adequately in the time remaining. But I would like to suggest the direction of the approach.

B. The Revolution

The "republican synthesis" focuses, almost exclusively, on the political dimensions of the Revolution. Of course there were political dimensions: the Revolution took place in the context of a rule of law; whatever the need for independence, the colonists were committed to the rule of law; and it was necessary for them to revise legal definitions of authority.

But, as suggested by Joyce Appleby and others, there were substantial economic dimensions to the Revolution as well. In retrospect, given the British commitment to mercantilist policies, the country was a dysfunctional colonial power. (Note that virtually all of the remaining discussion is taken from work of my daughter.[29]) The British viewed the American colonies as resources from which to extract wealth, not as markets that would allow the generation of wealth. The colonists understood their position and their opportunities differently, and sought independence in order to allow their markets to flourish.

Beginning in the 1650s and 1660s, Britain imposed the Navigation Acts that sought to monopolize American trade. Successively, these Acts required that colonial produce could only be transported in English-owned ships. To enforce the requirement, they prohibited foreign ships from entering colonial ports. Upon export, they prohibited non-British subjects from acting as factors for the goods or as merchants in the colonies. They required that the most valuable of American produce--tobacco and cotton, among other enumerated goods--only be shipped to England. They required that all European goods to be shipped to the colonies first be shipped to England, to be unloaded and then reloaded on British ships. They suppressed any development of colonial manufacture. These requirements and prohibitions, enacted early in the colonial period but remaining in force throughout, substantially limited the market for American goods and increased the costs of both export and import.

In addition, in order to protect British merchants and investors, the British Board of Trade implemented monetary policies on the America colonies that substantially depressed or disrupted colonial commerce.[30] The Board of Trade alternated between prohibiting the issuance of colonial currency on grounds of constraining inflation, leading to frequent resort to inefficient barter in the colonies, to allowing the issuance of colonial notes changing terms of trade. Many colonists, including important Revolutionary figures such as Samuel Adams, attempted to moderate the currency fluctuations by issuing a form of internal currency, backed by a Land Bank which was to possess title to the subscribers' lands as security for notes of the bank. The British Board of Trade suppressed the Massachusetts Land Bank. The Land Bank represented an attempt to foster commerce by establishing a stable and dependable currency. Subsequent to its suppression, John Adams stated that the British "act to destroy the Land Bank scheme raised a greater ferment in this province than the Stamp Act did."[31] The suppression of the Land Bank proved to many colonists that the British would prohibit the creation of any institution designed to promote capital accumulation.

During the 1760s, the Parliament and Board of Trade tightened the economic screws on America, justified as means of paying off the debts incurred in the French and Indian War. The Act of 1763 improved enforcement of the Navigation Acts. The 1764 Sugar Act nominally reduced taxes on molasses, but substantially increased collection of the tax. The Currency Act of 1764 prohibited all colonies from issuing legal tender. The Stamp Act of 1765 required that most legal documents be drafted on paper printed in London, which was costly for all legal transactions, but also threatening because it showed that the Parliament commanded control over internal colonial affairs. The Townshend Acts of 1767 established new mechanisms and additional officials to enforce the various customs regulations. The Board of Trade increasingly prohibited inter-colonial trade. The Stamp Act and the Townshend Acts were later repealed, but the punitive and extractive ambitions of Britain for the colonies was made clear.

The "republican synthesis" emphasizes the political and ideological rhetoric of the revolt. But the American colonists were not Trotskyites; they believed in the rule of law. Of course their protest would be framed in political terms. That is, at least part of their protest. As is well known, in the late 1760s, the colonists adopted economic means to protest the policies of the British government that they thought were suppressing economic growth. Groups of colonists adopted non-consumption and non-importation policies, according to which they refused to consume or to import British goods. Faced with these protests, the British Board of Trade prohibited all trade with America in 1775. The colonists regarded this prohibition as a liberation because it meant that American ports would be open to non-British ships for the first time in over a century. John Adams stated, "Foreign nations, all the world I hope, will be invited to come here, and our people permitted to go to all the world. . . ."[32] But it made the Revolution inevitable.

The "republican synthesis" has built its support on, in addition to the political rhetoric of the time, the fact that the absolute level of British taxation of the American colonies was relatively low, estimated as equaling three percent of the taxes British nationals paid.[33] Adam Smith in The Wealth of Nations supported the American Revolution backhandedly--he supported getting rid of the colonies--because he thought that the British expense in defending the colonies far outweighed benefits gained.[34] But rhetoric can be misleading. The familiar slogan of the Revolution--no taxation without representation--does not address what representation might have been possible. Would the admission of Benjamin Franklin to Parliament have changed British mercantilism? In 1770, white American colonials constituted 20.3 percent of the combined population of America, England and Wales.[35] Was there a chance of per capita representation? It seems unlikely.[36]

Many, perhaps most, colonists joined the Revolution because they believed that British colonial policies were suppressing economic development, and thus were suppressing their opportunities for economic advance. The concern identified in the political discussions of the time of dependence on England are not inconsistent. The emphasis of the values of the Puritan Ethic--hard work and industry--support the economic interpretation: without independence and an expanded economic regime, frugality and industry would go for naught.

C. The Constitution

Again, the subject is vast and I have little time remaining, so I will treat it lightly. None can doubt that there were important economic motivations for adopting the Constitution. As Edmund Morgan emphasized many years ago, a significant motivation for abandoning the Articles of Confederation and adopting the Constitution was to create a national economic policy.[37] The most important feature of that policy was to create a free-trade zone within America through the grant of authority to regulate commerce to the national Congress and through the prohibition of discrimination among the states and the prohibition of state taxation of imports or exports. Under these policies America became, as it is today, the greatest market in the history of the world.

IV. What Do I Mean by Capitalism?

For purposes of clarifying my point, let me address again what I mean by "capitalism." I use the term here in a very general sense to refer to policies and practices that seek to advance economic versus political interests. Thus, I am abstracting from many issues relevant to our modern understanding of how to maximize economic growth. I am not claiming that, since the days of the Pilgrims, America has been committed to the Washington consensus. Over the centuries, there have been many differences in specific policies as to how to attain economic growth. Even Hamilton was a mercantilist over a large range and advocated import substitution. Our understanding of market capitalism has surely advanced over time, in particular with the adoption of policies of industrial regulation such as the antitrust laws that have been importantly redefined in the 1980s and continue to be redefined today.

I am also not claiming that America at any point has been committed to a policy of free markets. There are no free markets. Markets must be defined by law and the rules of the market enforced.

Perhaps the most salient example of this point and an embarrassment to capitalism as well as to the "republican synthesis" is the toleration of slavery. Where market rules were defined to allow slavery and to allow a slave trade, the market in slaves flourished. It was a lucrative market and, but for abolition and the Civil War, it would have continued to flourish in America. Eltis estimates that, as late as 1860, a slave could be purchased on average at the River Congo for $30, transported to the New World for an additional $30, and sold for $900.[38] But a market that allowed slavery was not a market that maximized the value of human capital. The market had to be redefined.

My definition of capitalism here is the promotion and achievement of economic advance and personal economic improvement. My argument is that economic improvement and not political participation is the central and defining value of the country.

Let me end by returning to the topic of immigration. I have addressed immigration earlier because I believe that it is prototypical of the point of the talk. Migrants move to enhance their economic position.

All Americans are immigrants. Even Native Americans are immigrants, though 20,000 years ago. Today, all Americans are grandsons or granddaughters or perhaps further generations removed of immigrants from the Old World. But Americans are immigrants in a deeper sense. Most discussions of immigration focus on international immigration. But, beyond the initial immigration to this country, America has witnessed massive movements of internal migration: the Great Migration of African-Americans from south to north coinciding and, as has been argued, stimulated by the suppression of international immigration in the early years of the 20th Century;[39] westward expansion, for example, that continues today. Most Americans today remain potential immigrants seeking economic advance in the sense that most Americans have moved and remain willing to move to advance economic position. Chris DeMuth is an immigrant from Kenilworth to Washington; I am an immigrant from Colorado to Connecticut. Everyone in this room is an immigrant in this sense, all reflecting the capitalist values that are at the foundation of this country.

George L. Priest is the John M. Olin Professor of Law and Economics at Yale Law School and a member of AEI's Council of Academic Advisers.


1. Bernard Bailyn, Pamphlets of the American Revolution, 1750-1776 (1965).

2. Gordon S. Wood, The Creation of the American Republic 1776-1787 (1969).

3. Bernard Bailyn, The Ideological Origins of the American Revolution (1967) (a slightly expanded version of Bailyn’s introduction to his Pamphlets above); Gordon S. Wood, The Radicalism of the American Revolution (1991). Also important was J. G. A. Pocock, The Machiavellian Moment: Florentine Political Thought and the Atlantic Republican Tradition (1975).

4. The term "republican synthesis" was apparently coined by Robert E. Shalhope in "Toward a Republican Synthesis: The Emergence of an Understanding of Republicanism in American Historiography," The William & Mary Quarterly 29, no. 1 (1972): 49. For further discussions of the "synthesis," see Joyce Appleby, Liberalism and Republicanism in the Historical Imagination at chapter 1 (1992) and Gordon Wood’s 1998 preface to his The Creation of the American Republic.

5. Robert E. Shalhope, "Toward a Republican Synthesis:" 70.

6. Edmund S. Morgan, "The Puritan Ethic and the American Revolution," The William & Mary Quarterly 24, no. 1 (1967): 3; see also Alan Heimart, Religion and the American Mind: From the Great Awakening to the Revolution (1966), discussed in Robert E. Shalhope, "Toward a Republican Synthesis:" 68-69.

7. Bruce Ackerman, We The People: Foundations (1991). Ackerman draws explicitly on Pocock; see at 27-33.

8. See Joyce Appleby, Liberalism and Republicanism in the Historical Imagination at chapters 5, 10-13; Joyce Appleby, Capitalism and a New Social Order (1984).

9. Edmund S. Morgan, "The Puritan Ethic and the American Revolution:" 4-14.

10. Ferdinand and Elizabeth, "Privileges and Prerogatives Granted by Their Catholic Majesties to Christopher Columbus," 1492, available at

11. "The Letters Patent of King Henry the Seventh Granted unto Iohn Cabot and his Three Sonnes, Lewis, Sebastian and Sancius for the Discouerie of New and Unknowen Lands," available at

12. Chiefly ignoring the Pilgrims who preceded them. See Nathaniel Philbrick, Mayflower (2006).

13. It is one of the great tragedies of world history--and not noticed by Adam Smith--that, under the mistaken belief that gold was valuable as gold, instead of merely effecting the money supply, a point Smith made, Cortez and Pizzaro melted down to bullion Aztec and Inca artistic treasures any one of which today would have assured the wealth of their successors for generations. Of course, both faced what might be called logistical complications in leaving the territory.

14. "The First Charter of Virginia," April 10, 1606, available at

15. A new charter for a joint-stock company was issued to the Virginia Company in 1609, which indicates a massive increase in investors, though there had been no recorded profits for the 1606 Company. "The Second Charter of Virginia," May 23, 1609, available at

16. Quoted in Abbot Emerson Smith, Colonists in Bondage: White Servitude and Convict Labor in America, 1607-1776 (1947), 9.

17. Edmund S. Morgan, "The Labor Problem at Jamestown, 1607-18," American Historical Review 76 (1971): 595.

18. William Bradford, Of Plymouth Plantation (Harvey Wish, ed.) 42.

19. Ibid., 33.

20. The financial history of the colony is explained in Ruth A. McIntyre, Debts Hopeful and Desparate (1963).

21. "The Charter of New England," 1620, available at

22. See also Nathaniel Philbrick, Mayflower.

23. See also Robert Charles Anderson, The Pilgrim Migration (2004); and Stephen Innes, Creating the Commonwealth: The Economic Culture of Puritan New England (1995).

24. Timothy J. Hatton and Jeffrey G. Williamson, Global Migration and the World Economy (2005), 8.

25. This discussion is taken from Abbot Emerson Smith, Colonists in Bondage: White Servitude and Convict Labor in America, 1607-1776 (1947); and David Cressy, Coming Over: Migration and Communication between England and New England in the Seventeenth Century (1987). Hatton and Williamson estimate a lower number, but their base includes all migration to the Americas including the Caribbean and South America.

26. This discussion is taken from John Frederick Martin, Profits in the Wilderness: Entrepreneurship and the Founding of New England Towns in the Seventeeth Century (1991).

27. See, e.g., Herbert L. Osgood, The American Colonies in the Seventeenth Century (1904-07); and Frederick Jackson Turner, The Frontier in American History (1920).

28. John Frederick Martin, Profits in the Wilderness, 9.

29. Claire Priest, Currency Policies and Legal Development in Colonial New England, 110 Yale L.J. 1303 (2001); and Claire Priest, "Law and Commerce, 1580-1815" in The Cambridge History of Law in America (forthcoming 2007).

30. See Claire Priest, Currency Policies and Legal Development in Colonial New England.

31. Claire Priest, "Law and Commerce, 1580-1815," 35.

32. Ibid., 45.

33. Joseph D. Reid, Jr., "Economic Burden: Spark to the American Revolution," Journal of Economic History 38 (1978), 95. Many other sources make comparable estimates.

34. This was the greatest miscalculation of Smith's otherwise brilliant book, though as an analyst of markets, Smith did not develop a theory of profit-enhancement by colonial powers.

35. Derived from John J. McCusker and Russell R. Menard, The Economy of British America, 1607-1789 (1985), 54; and G. T. Griffith, Population Problems of the Age of Malthus (2nd ed. 1967).

36. Cf. Baker v. Carr, 369 U.S. 186, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962) (adopting per-capita representational theory in the U.S.)

37. Edmund S. Morgan, "The Puritan Ethic and the American Revolution:" 42.

38. D. Eltis, Free and Coerced Migrations from the Old World to the New in Coerced and Free Migration: Global Perspectives (2002), 43.

39. Timothy J. Hatton and Jeffrey G. Williamson, Global Migration and the World Economy.

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George L.
  • George L. Priest is the Edward J. Phelps Professor of Law and Economics and Kauffman Distinguished Research Scholar in Law, Economics, and Entrepreneurship at Yale Law School. Over the past two decades, he has focused his research on antitrust, the operation of private and public insurance, and the role of the legal system in promoting economic growth. Priest joined Yale Law School in 1981 and is co-director of the John M. Olin Center for Law, Economics and Public Policy. Earlier, he taught law at the University of Chicago; the University at Buffalo–State University of New York; and the University of California, Los Angeles. Priest is also chairman of AEI’s Council of Academic Advisers.

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