Text 2. Government and the economy
In the relationship between government and the economy, ideas influence policies and policies shape outcomes. This three-way connection is sometimes direct, sometimes tenuous, sometimes perverse. Of the three elements, the easiest to evaluate historically is outcomes. By almost any measure, the American economy is the most successful the world has ever known. Even in colonial times the standard of living was generally better in America, at least for whites, than in Europe or Asia. In the decades following the American Revolution, economic growth remained high and remarkably steady. By the end of the nineteenth century, the United States surpassed all other countries in both agricultural and industrial output.
For most of the twentieth century, gross national product per capita has remained higher in the United States than in any other country, with the occasional exception of small advanced economies such as Switzerland and Denmark or oil-rich nations such as Kuwait. Only in the 1980s was the United States overtaken by countries such as West Germany and Japan, and even then only by the measurement of gnp per capita at exchange rates favorable to the deutsche mark and yen. By any other index of quality of life, the American standard of living was still the highest in the world.
If this outcome of unique affluence is clear, the ideas and policies behind it remain open to interpretation. How much did American economic success derive from laissez-faire ideas and policies, how much from governmental intervention? How much did it stem from neither of these but from the simple fact of a wealthy, isolated, and sparsely inhabited continent ready for exploitation? Assuming, for the sake of argument, that the early policies can be characterized as laissez-faire, then how much of the letting alone originated in the reasoning of Adam Smith and Thomas Jefferson, how much in the practical impossibility of effective public administration over a far-flung country?
In tracing the ideas behind American economic policies, the colonial period is the proper starting place. As the historian Carl Degler once remarked, «Capitalism came in the first ships.» The English settlers of North America brought with them clear convictions about the nature of sovereignty and the rights of property. These ideas, and the resulting policies, then interacted with the circumstances of a rich and underpopulated continent to set the context of economic activity.