On this 4^th of July weekend, as we celebrate America’s 238^th birthday, many of us will be visiting friends & family and enjoying some food and fireworks. A few of the more philosophical might spend some time thinking about freedom, perhaps the Constitution, and perhaps be grateful that they live here and not somewhere else. However, I dare say that few, if anyone, will be thinking about economics. And yet, it is the economics that makes America attractive to people today.

Although it may sound sacrilegious to say it, freedom is like air: you only notice it when you don’t have it. A person once told me that most people don’t really care whether they live in a democracy or a dictatorship, just as long as their needs are being met. While we, in America, like to think that people want to come here to be free to say what they think, to vote their conscience, etc. etc., the truth is that the illegal immigration issue that we have is not because people are so desperate to write a letter to the editor that they hire smugglers to get them into the U.S. It is because they want a higher standard of living than they can have in their own countries. To them, it probably doesn’t matter whether America is a democracy, an oligarchy, or is being run by Vladimir Putin, it is substantially better than what they are running from, and that is enough.

However, it is the economic freedom that America won 238 years ago and has developed in the intervening years that has allowed the U.S. to become the economic (and military) superpower that it is today. It is the freedom to develop ones potential to the maximum extent possible, as opposed to having your economic destiny determined by who you your father was, or determined by what those in authority dictate that it should be, that has allowed America to harness the talents of its people (i.e. its human capital) and create unheard levels of wealth. It was economic freedom found in America that allowed a group of college dropouts to create computer companies that have completely changed the human experience. It was economic freedom that allowed Henry Ford to develop assembly line techniques that allowed undreamt of numbers of automobiles to be produced. It was economic freedom that allowed two guys from Ohio to spend their time experimenting with flight and eventually produce the first airplane, etc. etc.

Economic freedom is not only found in America of course. The idea of economic freedom has spread around the world in the last 200 years, and many of the richest countries in the world (i.e. Western Europe) have high levels of it relative to countries that are poorer.  However, in America, the economic freedom ethos is not only legal, but cultural. Economic freedom is not only the freedom to succeed, but the freedom to fail. Economic freedom means that you can try several different paths to figure out which ones suits your talents the best. Economic freedom means that failure in one area does not brand you as a failure for life. Germany is also a fairly economically free country. However, one thing that I learned there as an exchange student at a business school was that trying to start a business and failing would make it very difficult to get a second chance to start another one. The American ethos, on the other hand, welcomes second chances. A failure in one area, doesn’t mean that one can’t try and be successful at something else. I remember an immigrant from India saying to me when he realized this that “I love this country. I can screw up, and it doesn’t ruin my life”. To me, that statement is the essence of economic freedom.

So during this weekend and you drive your car to friends, and enjoy simple things like air conditioning and indoor plumbing, microwave ovens and video games, DVD players and cell phone calls, etc, remember that none of these things would have been possible without economic freedom. Like air, life without economic freedom is very different than life with it.