When Independence isn’t Freedom

I owe the idea for this column to my friend Tom Morton, whose Harrowgate blog  lends a considerable dose of dry Brit humor and keen business perspective to the issues of small business ownership. Give him a read. Sometimes the topical references are lost on me, but it’s great to know what we look like to our cousins across the pond (as Tom would say).

We just celebrated Independence Day. July 4, 1776 is the traditional date for the signing of the Declaration of Independence, although it took some months to collect the scribbles of each of the members of the Continental Congress, and another eight years before we were recognized by the Kingdom of Great Britain.

We don’t celebrate March 4th, 1789, and the vast majority of Americans (Dare I say virtually all?) couldn’t tell you on a bet what happened on that date. That’s the date when the Constitution of the United States of America became effective after ratification, and we actually became a nation.

Ratification was an interesting process in itself. The Founding Fathers were smart enough to know that unanimity would be impossible. It put too much power into the hands of the last few holdouts, who could and would demand special concessions. So they put into the Constitution a provision that once it was approved by 75% of the states, it was binding on all of them.

How do you bind a sovereign entity that hasn’t agreed to be bound? Good question. I’m glad we got past that one, somehow. It was an interesting exercise in peer pressure.

This bit of governance sleight-of-hand reflected the issue that faced the states after winning their independence from England. Highly sensitive to the power of a central government, the thirteen states had begun under Articles of Confederation that left each of them free to make their own independent decisions, without any authority over them to force coordination or cooperation.

Any business owner can imagine an organization of thirteen partners who can opt in or out of every day-to-day decision. You wouldn’t have a company, and America didn’t have a country. It had a huge war debt, and thirteen partners who refused to assume the liability for it. It had no army, no treasury to speak of, and no cohesive voice in external affairs.

Our little experiment in citizen government had rapidly deteriorated into an insolvent laughingstock. We were independent, but our own skepticism about rules had deprived us of the freedom to function as an entity. Fortunately, we had some brilliant men, especially John Adams, Thomas Jefferson and Alexander Hamilton who could not only conceive a workable solution, but could put together sufficient support to make it work.

Like any de novo structure, the Constitution was flawed. As soon as it became effective Congress went to work on the Bill of Rights. The first two articles were defeated. One set the minimum number of people to be represented by one congressman at 50,000. (Thank goodness – we could have 6,300 Congressmen today!) The second, delaying pay increases voted by legislators for themselves until the next session, was finally passed as the 27th Amendment in 1992. (What does 200 years matter for a good idea?)

The basic structure of the Constitution has held up for over two centuries. Whether you agree with the current residents of each branch or not, the separation of powers between the Executive, Legislative and Judiciary functions of the Federal Government remains vital and relevent to this day.

Alexander Hamilton, the first Secretary of the Treasury, pulled off a neat bit of Quantitative Easing himself. He consolidated all the states’ debts for the war into the Federal Treasury. Like QE and Constitutional ratification, it was another bit of sleight-of-hand. The Federal Government still had no resources, but the states were suddenly free of war debt and credit-worthy again.

There is no doubt that our Founding Fathers, especially Jefferson and Adams, would be aghast at the power concentrated in the Federal Government today. Hamilton? Probably not so much. After all, he originally proposed filling the office of President with someone who would be elected for life. Most of the others weren’t as enthused about merely trading one King George for another.