The Fourth of July and Human Capital

Two hundred and fifty years ago, something unique happened, the people of a nation were able to step away from what had been and envision what a nation could be. The people and the governing structure had never been so intertwined. A deep understanding of the people was necessary to create this new framework of governance, and the tradition of Western law was examined thoroughly to find the best framework for the people. The Founders fought viciously over where the boundaries should be drawn between individual autonomy and state control, Federal oversight, and regional independence. When they finished, they had created a system of governance that allowed more individual freedom than any that came before it. It also pulled together some of the best elements of earlier forms of governance to create the best chance of aligning the government’s incentives with those of the people. While this freedom shaped all the people who grew up in it, it had no guarantee of creating the American supremacy that is seen today. Only through a strong culture of virtue and creativity could the nation effectively utilize this effective form of governance and create something great. This system of government and its people formed each other and are only successful because of one another.

A free government without a strong culture of virtue and trust cannot sustain itself. Numerous free enterprise zones have failed when the nation surrounding them is not filled with virtuous people. Freedom only leads to growth and innovation when citizens are driven to build virtue that allows coordination. Paradoxically, these traits are enabled and supported by a government that allows for freedom, but freedom itself is often not enough to guarantee the creation and maintenance of these virtues, but a people can easily squander that freedom rather than cultivate virtue through it. All commerce has lower transaction costs when it is done in a society with high trust. People can spend less time worrying about the validity of their transactions and more time creating new and interesting things in a country with a culture more similar to America’s than Belarus’s. While freedom benefits the environment in which real virtue is practiced, the culture must be able to sustain a people with the internal traits that are the building blocks for all flourishing societies.…