Are Free Markets Embedded in the U.S. Constitution? Adam Smith and the Wealth of Nations
September 26, 2018
by William P. Meyers

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1776 Publication of Wealth of Nations Just a Coincidence?

Thirteen colonies of the British Empire declared independence together in 1776. Led by the Continental Congress, they formalized their relations in the Articles of Confederation. Calling themselves states, they strengthened the national government with the U.S. Constitution in 1788.

The Wealth of Nations, by Adam Smith, was published in 1776. It stands as the first modern economic analysis. It describes what we now call free markets and argues that they lead to economic prosperity. In contrast it criticizes the older idea that agriculture and manufacturing should be under strict government supervision. It also describes what we now call the Industrial Revolution that was then starting in Great Britain and which would eventually become a major force in American history.

Some modern Americans, typically classified as conservative, have argued that the Constitution in some way incorporates the idea of free market capitalism, as borrowed from the writings of Adam Smith. See for instance Adam Smith’s Constitutional Theory and Adam Smith at the Constitutional Convention for scholarly work.

In the cruder world of American politics some call the Constitution sacred and expect all argument to end. The idea that America is a free-market capitalist nation, and should not be anything else, does not need support from Adam Smith. But appeal to Smith is there when an argument has to be made.

One person can read the Bible and conclude that sinners should be forgiven, while another reader concludes that they should be stoned to death. So too can complex works like Wealth of Nations, the Federalist Papers, and the Constitution itself be read in various ways.

Perhaps some members of the Convention that wrote the Constitution had read Wealth of Nations. James Madison mentioned it in 1891. Thomas Jefferson mentioned reading it — in 1807. However, anyone who reads Wealth of Nations and the Constitution will have a degree of difficulty showing that one contributed to the other. Get an electronic copy of the Constitution and try some word searches. The word "wealth" does not appear at all in our Constitution. Neither does the word "market". "Private property" appears in the Fifth Amendment, but everyone (Smith and Opponents) agreed on the importance of respecting private property (unless it belonged to American Indians or women).

Adam Smith's intellectual opponents in the 1780s were not socialists. They were mercantilists. It could be argued that, if it has any economic theory, the Constitution supports mercantilism. That theory is designed to maximize the trade of a nation by government action. Partly the American revolution was a rebellion against the mercantilist policies of the British Empire, but that did mean that America’s new leaders were against American mercantilism.

In fact Alexander Hamilton, in his Report on Manufactures, argued for want amounted to mercantilism in 1791. Given that he was one of the authors of the Federalist Papers, I consider that a major debating point for those who do not believe Wealth of Nations, and unregulated, free-market capitalism, are enshrined in the U.S. Constitution.

But the question should not be: what did the leaders of 1776 or 1780 think of economics? The question should be: what is the best economic policy in our own era? We have a couple of hundred years of economic history to inform that.

We also have a Constitution, written by men, that is over 200 years old. It has been amended just 27 times, with most of the amendments being on narrow issues. None of the amendments specifically addresses economics.

Early in American history some citizens wanted Congress to appropriate money to help build canals. Other citizens argued that the Constitution did not allow for this. The canal builders won the argument, not just by getting the canal money appropriated and the canals built. The canals proved a great benefit to the nation, and paved the way for federal aid for building railroads and eventually the Interstate Highway System.

Under a free market system a business person is still free to make good or bad decisions, and may think she is making a good decision until the future shows it was a bad decision. Our governments, federal, state, and local, must make decisions. Some have turned out to be bad, for sure. But our nation has a pretty good record on some things, including New Deal reforms, called socialist by some (even though they do not involve government ownership of industry, which is the real test of socialism). Social Security works. Unemployment insurance works. The income tax works. Most of the time the Federal Reserve works.

I think Wealth of Nations is a book every citizen should read, but then I have a long reading list for my fellow citizens. I particularly recommend it to leftist intellectuals, if only so they can be better equipped to argue with their rightist opponents.