Everybody knows who America’s first president was, but can you identify the country’s first economist?
If any man or woman deserves that description, it is surely the one who wrote this and so much more:
I propose . . . to take off every restraint and limitation from our commerce. Let trade be as free as air. Let every man make the most of his goods in his own way and then he will be satisfied.
The "American Adam Smith"
His name was Pelatiah Webster. Largely forgotten today, he was regarded as “the American Adam Smith” after his death in 1795 at the age of 68. His wisdom, especially on trade and money matters, deserves a renewed appreciation today.
Webster was born in Lebanon, Connecticut, in 1726. Twenty years later, he graduated from Yale and became a minister in Massachusetts. By 1755, however, the lure of entrepreneurial opportunities took him to the business world of Pennsylvania. In 1776, the same year the Declaration of Independence appeared in America, Webster started publishing a series of essays on economic matters.He was an almost instant success as a merchant, amassing a small fortune in the process. His reputation as an authority on matters of trade, finance, and currency was unmatched by anyone in the 13 colonies on the eve of the American Revolution. The Second Continental Congress regularly sought his advice.
In 1776, the same year the Declaration of Independence appeared in America and Smith’s The Wealth of Nations debuted in Scotland, Webster started publishing a series of essays on economic matters. In 1777, he authored a famous letter to George Washington in which he reported on the awful conditions suffered by Americans imprisoned by the British. The revelations in that letter and in other writings landed him behind British bars himself for four months in 1778. The Brits ripped off a sizable chunk of his personal wealth, as well.
In 1783, Webster published his Dissertation on the Political Union and Constitution of the United States of North America. It proved to be enormously influential in the run-up to the Constitutional Convention of 1787 and the ratification of the Constitution itself. In 1791, he published a compilation of his pamphlets and articles under the title Political Essays on the Nature and Operation of Money, Public Finances, and other Subjects during the American War. It remains accessible, insightful, and fascinating to this day. You can read it at Liberty Fund’s Online Library of Liberty here.
A 1907 article in the Yale Law Journal by Hannis Taylor titled “Pelatiah Webster: The Architect of our Federal Constitution” praises Webster profusely, claiming that “among our nation-builders, Pelatiah Webster stands second to Washington alone.” Taylor argued that Webster was sadly neglected by historians “not through any conscious omission, but because of a careless historical scholarship which has failed to present his great achievement in its true light.”
Price Controls in Early American History
Indisputably, Webster’s behind-the-scenes contributions to the Constitution were immensely significant, though he was squarely in the camp of the Federalists of his day. Personally, I would have planted myself in the opposing camp of the Anti-Federalists, so I would have differed from him on important issues of governance.
On economics, however, Webster penned many excellent insights that make him worthy of the moniker “America’s First Economist.” Here are just a few:
In my 2008 essay, “The Times That Tried Men’s Economic Souls,” I recounted the Continental Congress’s mistake in resorting to paper money inflation. Webster opposed the practice from the start and later noted its disastrous consequences:
The people of the states had been ... put out of humor by so many tender acts, limitations of prices, and other compulsory methods to force value into paper money ... and by so many vain funding schemes, declarations and promises, all of which issued from Congress but died under the most zealous efforts to put them into operation and effect.
Within a year of cranking up the printing presses, Congress decreed that the army could requisition supplies at fixed prices. It was a ruinous experiment in price controls that ensured not ample provision but outright destitution. If Congress hadn’t heeded the warnings of men like Webster and abolished them quickly, America might well have lost the war. As our first economist observed:
We have suffered more from this cause than from any other cause or calamity. It has killed more men, pervaded and corrupted the choicest interests of our country more, done more injustice even than the enemies.
Webster’s experience as a successful businessman undoubtedly influenced his thinking on the virtue of free trade. His pamphlets are laced with eloquent defenses of commercial liberty. “Trade, if left alone,” he declared, “will ever make its own way best, and like an irresistible river, will ever run safest, do least mischief and most good, if suffered to run without obstruction in its own natural channel.” Furthermore, he wrote:
Freedom of trade, or unrestrained liberty of the subject to hold or dispose of his property as he pleases, is absolutely necessary to the prosperity of every community, and to the happiness of all individuals who compose it….All experience shows that the most effective way to turn a scarcity into a plenty, is to raise the price of the articles wanted…In times of danger, distress, and difficulty every man will use strong endeavors to get his goods to market, in proportion to the necessity and great demand for them; because they will then bring the best price, and every man is fond of embracing golden opportunities and favorable chances….
In times of scarcity, every man will have strong inducements to bring all he can spare to market, because it will then bring the highest price he can ever expect, and consequently the community will have the benefit of all that exists among them, in a much surer manner than any degree of force could extort it, and all to the entire satisfaction of buyer and seller.
My favorite Webster quote on free trade comes from an essay he penned in 1780. This was a guy who knew his economics and didn’t hold back when stupid interventions predictably backfired.
Let every man be at liberty to get money as fast as he can; and let the public call for it as fast as public exigence requires. Limitations of our trade have been so often tried, so strongly enforced, and have so constantly failed of the intended effect, and have, in every instance, produced so much injustice and oppression in our dealings, and excited so many quarrels, so much ill-will and chagrin among our people, that they have, in every instance, after some time of most pernicious continuance, been laid aside by a kind of general consent, and even most of their advocates have been convinced of their hurtful tendency, as well as utter impracticability.
When a government goes to war, the pressure to print money proves irresistible. Some people actually think the printing press allows the government to secure labor and material more cheaply than if it raised taxes to pay for them.
But Webster knew that there was nothing magical about a printing press. Everything must be paid for, if not by higher taxes now, then by higher taxes later—in the form of higher prices, as well as higher taxes. His advice to the Congress was to refrain from debauching the currency and pay for what it needed as much as possible by raising taxes. The rest, he argued, could be financed by issuing minimal debt backed by a promise to redeem in precious metal.
Webster wasn’t a fan of government debt. When emergencies are over or coffers swell, he urged debt retirement. I wish his advice would be taken in Congress today, where deficit spending is soaring in spite of a booming economy.
…[I]t is a plain maxim that people should always pay their debts when they have a good run of business and have money aplenty; many a man has been distressed for a debt when business and money were scarce, which he had neglected to pay when he could have done it with great ease to himself, had he attended to it in its proper season; this applies to a community or state as well as to a private person.
So much of sound economics reduces to what Pelatiah Webster would likely regard as common sense: Don’t spend what you haven’t got. Don’t mortgage your children’s future. Leave free people alone to produce and create. Refrain from cheating your creditors or your customers. Be honest with money. Let trade be unfettered by superstition, fallacy, or the arrogance of officialdom. Honor your contracts. Establish a stable framework under the rule of law so people can go about their business. Keep the peace.
And that’s why America’s first economist is worth listening to more than two centuries after he lived.