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Economic Independence Day

November 24, 2009

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” And with the penning of these words by Thomas Jefferson in 1776, the great American dream began.

The history of the United States is the story of an economic miracle that was made possible by the translation of the principles of freedom embodied in the Declaration of Independence that we celebrate today. The struggle to maintain these freedoms has created an economy where any man or women, rich or poor, black or white, immigrant or landholder could work for themselves, pursue their dreams and build their own business. In pursuit of those dreams and while building those businesses, Americans have created more wealth and prosperity than any nation in the history of mankind.

In 1776, the same year that Thomas Jefferson drafted the Declaration of Independence at the direction of the Second Continental Congress, a Scotsman named Adam Smith, generally regarded as the founder of modern economics, published his famous book “The Wealth of Nations”. These two documents, drafted in the same year, put forth both the political and economic principles that underlie the economic miracle that we enjoy today.

In “The Wealth of Nations” Smith dealt with the relationship between freedom and economic prosperity. Smith was an advocate of economic individualism. He argued that in societies where people are allowed to pursue their own self interests, there will be social order and economic progress. When willing buyers and willing sellers meet in an open market, a pattern of trade develops that leads to prosperity and social harmony.

Smith said that when individuals make economic decisions in their own self interest, they are led “as if by an invisible hand” to promote the general welfare and prosperity of the society. The Declaration that we celebrate today, that first proclaimed us “equal”, “with rights” among them “the pursuit of Happiness”, has enabled the “invisible hand” to work its miracle to our benefit. However imperfect we may be, no other country on earth has been able to accomplish so much, in such a brief period of time for the benefit of so many.

Adam Smith’s fundamental observation was that in transactions where cooperation is voluntary and in which all parties perceive themselves to benefit, efficiency is maximized. When an element of restraint or coercion is introduced in exchanges that are then seen as less than voluntary, efficiency is diminished.

Consider for a minute that in “the pursuit of Happiness” we are really all in business for ourselves. Your employees, your customers and your vendors each regularly enter into economic exchanges with you. Your employees trade their time for wages, your customers exchange their money for your goods while your vendors supply goods for your money. Do they want to do business with you, or do they have to do business with you? To the extent that these transactions are voluntary, and both parties see themselves as benefiting from the exchange, your business will prosper.

Think of your employees as being in business for themselves. They really are! You need to enroll their self interest so that they see the pursuit of their happiness as being advanced by working for you. Just as the political and economic freedoms that were articulated in 1776 enabled our Nation to grow and develop, the freedom to make decisions and the ability to advance their own self interest will enable your employees to prosper and the “invisible hand” will promote the economic well being of your business.

Those who toiled in 1776 and those who have immigrated to these shores during the last two hundred years began with something less than perfection. We too are faced with significant challenges. However, the economic miracles that have preceded us were miracles made possible by the freedom to pursue opportunity. To the extent that we permit individuals within our businesses and our Nation to exercise those freedoms to pursue their own self interests, the “invisible hand” will enable us to meet the challenges before us.

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