Intro (00:02):

Welcome to The Future of Liberty, a project of Liberty Fund hosted by Mitch Daniels.

Mitch Daniels (00:16):

Welcome and I hope for most of you, I’m saying welcome back to The Future of Liberty, a product of Liberty Fund, an organization devoted for over 60 years to the promotion and the protection of the freedoms for which America is best known. And today our guest is a scholar, historian, activist, and I’m proud to say a friend for a very long time, Chris DeMuth, longtime head of the American Enterprise Institute, and still a very important thought leader on the American public scene. Chris, thank you for being with us.

Chris DeMuth (00:59):

Governor, it’s wonderful to be here with you. Thank you for the invitation.

Mitch Daniels (01:04):

You have been a prodigious writer and innovator of a number of concepts that I think some of our viewers will find interesting and new. Let me start by saying that your recent essay talks about colonial capitalism, about the importance of economic competition in the early days of the Republic. We tend to focus on the political innovations of the founders, but you point out that the economic climate of the time was just as important to the evolution of freedom.

Chris DeMuth (01:40):

One way to get into that is to notice that in the 1760s and ’70s, Americans had the highest income of any large nation on the planet. They’d been here for just 150 years. It had been a raw wilderness and they had built through many innovations in business. They were the first to use paper money backed not by gold, but by land to stimulate the economy. And they’d done it in some colonies poorly, in some colonies well. They’d improved because there was policy competition between the colonial governments. They had more or less invented insurance. They had made many, many steps forward. Now they came from the Dutch Republic and from England, which were pretty advanced economies at the time, but they made many, many important innovations. They hated the monopolies of the mercantilism of the British Empire and the Dutch, and they pretty much ignored them until shortly before the revolution.

(02:59):

If they had not been so successful, and they were successful as business people, and that included even the Puritans. I mean, Puritans turned out to be pretty good businessmen. The Quakers were terrific businessmen. If they had not done so well, they would not have been in a position to fight a revolution and win. And if they’d been as poor as the Spanish colonies, for example, they would not have been able to throw off the British yoke.

(03:33):

What led them to the prosperity that they’d found was not just capitalism writ large, but a program of decentralized power and competition that affected our political founding, not just by making the Revolution a possibility, but by giving us a structure that is highly competitive in important ways. We’re used to the separation of powers, and people at the Liberty Fund can, and the Founders could, cite John Locke and Montesquieu on the proposition. But at least as important to our success as a nation was the principle of federalism. There’s no John Locke or Montesquieu of federalism. And in fact, when the Constitutional Convention was being formed in 1787, John Adams, George Washington, Benjamin Franklin, and Alexander Hamilton were all intent on abolishing the states. They thought that the states had proven, in the years since the Declaration, to be nests of corruption and special interest manipulation, cancellation of debts, and they wanted to put an end to states as independent centers of power.

(05:10):

The states would’ve existed, but they were going to have no sovereignty. The federal government was going to be a unified government, a parliamentary government. The president was going to be chosen by the legislature and would have a veto. No explanation needed. Could veto any state law. They got to the convention and found that that was an impossibility. The separate colonies had developed distinctive, powerful forms of government. They had developed in the revolution a strong sense of national unity for the first time, but they were still very jealous of their prerogatives. They were not going to give them up. And they forced upon Madison and his cohorts that I mentioned, a form of government that they despaired of where the states were going to still have a tremendous amount of sovereignty, operating flexibility. And that has continued in very strong forms down to the present day.

(06:17):

So the competition that we have in our private markets is a principle that we also follow in the structure of our government, competition within governments at all levels, and then competition among levels of government. And that has been important through many, many dark times in getting us through. There are always reservoirs of resistance against bad things, sometimes resistance against good things. It was certainly states’ rights that kept Jim Crow in action for much, tragically, too long a time. So it’s not a pure, unmixed blessing, but it has given the nation a great deal of resilience in its politics as well as in its economic organization.

Mitch Daniels (07:13):

Well, and its self-correcting, inherently self-correcting mechanism to this day benefits us all. Those states that innovate or conduct themselves responsibly tend to benefit. Those who don’t tend to suffer until they see the error of their ways. There were a couple of, I thought fascinating examples you gave that our colonial ancestors created, the for-profit corporation.

Chris DeMuth (07:48):

There were for-profit enterprises and profit seeking was highly respectable in England, Britain by the time of the revolution, and in the Dutch Republic, but it was mainly a matter of small partnerships and large government support.

Mitch Daniels (08:11):

Or chartered by the

Chris DeMuth (08:12):

Monopolies.

Mitch Daniels (08:12):

Yeah, by the government.

Chris DeMuth (08:14):

And the sweet spot is the intermediate case, a corporation that has a degree of independence from government. It’s not simply operating on a royal grant, but it is able to raise money privately and to sustain itself over time so that when the revered founder dies, it’s not the end of things. That was pretty much an American invention. After the Revolution, after the new Constitution came into force, there was again a great deal of competition among the states. And James Madison was right. The states were sinks of corruption and special dealing. But as the economy grew, the states discovered, and I must say that the state of Indiana was a leader in all of this, that having general incorporation statutes, where, if you wanted to form a corporation, you didn’t have to go and get a special charter from the legislature for which it would charge.

Mitch Daniels (09:36):

Right.

Chris DeMuth (09:36):

Sometimes above board, sometimes under the table, but you simply filed papers showing that you conformed to statutory requirements for amount of capital and so forth and you could form a corporation. And it was competition among the states for economic development that led them to turn their backs on certain practices that had been good for certain privileged numbers of people to things that were good for the citizenry of the state. And the development of the for-profit corporation, including banks, free banking was an important movement before the Civil War. You can go back to England in those times and you do not find organizations such as had been developed here.

Mitch Daniels (10:30):

You mentioned insurance a minute ago. There was a fascinating little portion of your essay that talks about the way insurance had an effect on slavery.

Chris DeMuth (10:47):

I’m simply citing a fascinating book by a University of Chicago historian, Jonathan Levy. And he develops the idea that while there had been forms of insurance in the past, it was really the challenge of organizing the transatlantic trade. The Puritans had wanted to develop a completely self-sustaining economy. They wanted to do manufacturing and they wanted to do agriculture. They wanted to do this and that. Terrible. Their manufacturing firms in the 1700s were a disaster. America was going to be an extractive economy. It had minerals, it had basically agriculture and forestry. So for manufacturing, for clothing, it was going to require active trade with the old world. There was a big mighty ocean in between. Pretty soon, the trade involved the sugar trade down in the Caribbean going across to the Azores, Spain, up to Great Britain. This was a very complicated route.

(12:07):

It was very, very risky. Merchants in London and in the United States, primarily in Boston, Philadelphia, and little New York, developed the idea of insurance as a separate commodity, much like the commodities being carried on the boats. Within a few years, there were active insurance markets on both sides of the Atlantic. It was a very important financial innovation that has grown and grown over time. When you think about these terrible ocean voyages, there were tremendous risks. Everything could be lost. Ships could disappear for long periods of time. They could be robbed. The crew could become terribly sick, and the merchants were responsible for them. There were all of these risks, and they began insuring against them. From that came the idea that fate is not something you simply have to accept. You can actually calculate it to some degree.

(13:19):

You can take control of your future. And Levy makes the argument very persuasively, that this contributed to the modern idea of freedom, that freedom consists of the individual taking responsibility for his own fate. We don’t have to just sit back and accept it. It’s something that the individual can actually manage, not completely, but there are many things in life that if you think carefully about the future and what it will bring, you can have some effect on your life’s course.

Mitch Daniels (13:58):

I recommend to our audience your brilliant essays on this, the essential interdependence of political and economic freedom and the way they reinforce each other, you’ve added to our understanding of it in a very important way.

Chris DeMuth (14:12):

Thank you. Thank you very much.

Mitch Daniels (14:13):

Now let me ask you about something else.

Chris DeMuth (14:15):

Okay.

Mitch Daniels (14:15):

For a long, long time, many of us have looked at you as, feel free to quarrel with the adjectives if you want, but a leader of what I would call traditional conservative thought. You led the premier organization which advocates for economic freedom, the American Enterprise Institute for a very long time, very successfully. So when I pick up more recent essays and in which you describe yourself as trying to help form a national conservatism, I want to know more. Let me start by asking you about this. You have described traditional conservatism as flaccid, counterproductive, and the most interesting one to me, porous. So some of our audience is saying ouch right now, but I’m not saying that’s not a fair criticism, but talk a little about that.

Chris DeMuth (15:21):

I think that the traditional, what do you call, Reagan-era, you and I both cut our teeth in politics in the Reagan White House. The traditional conservative libertarianism that could sometimes be described as classical liberalism, which as the left became more dysfunctional, conservatism picked up on a lot of traditional liberal precepts such as freedom of speech, open inquiry, and so forth. I think that in the modern West, America and Western Europe essentially, that that brand of conservatism had become flaccid, porous. People still talked about limited government. Mitch, I want you to know I’m in favor of limited government and free markets, but the government is becoming unlimited. Markets were becoming progressively unfree. Often with the complicity of the Republican Party, we were going along with a lot of things such as ballooning federal debt that our principles should have objected to. And from month to month, those of us who were involved in practical politics, many of us in the event, found lots of reasons for doing the things that we had to do to get through the month. But the ultimate trajectory of things was very bad.

(17:02):

But what really turned things, in my view, was the rise of what is now conventionally called woke progressivism. And it was in a lot of ways a perversion of classical liberalism. You can find socialists among woke conservatives, but I think a lot of these developments challenged the very idea of nationhood. And when we go back to the ’60s, ’70s, ’80s and the conservative movement, the idea of the nation, it did not play a particularly large role. And in fact, some of us, including myself at the time, saw the nation as the government with all these stupid policies, overregulation and overtaxation, and you just look around at national governments and most of the things they do are things that I don’t like at all. And so the idea of globalization, which would restrict the capacity for mischief of the individual nation, seemed like a good thing.

(18:19):

Now, I believe that I was wrong about that. As I can remember as a young man, I loved Albert Jay Nock‘s book, Our Enemy, the State. And I can remember going to libertarian conferences as a young man where people had buttons that said, “Liberty is my God, and there’s no such thing as society.” I think that many, of course, not people as intelligent and wise as you and me, but many of our compatriots in the conservative and libertarian worlds went way too far in valorizing the individual and the idea of autonomy, the individual autonomy, and neglecting the important claims of the group, the family, the congregation, the community, of emphasizing freedom and consent as the highest possible goals of a political construct. But I didn’t consent to my mom and dad, and my mom and dad had more to do with who I am than anybody else. I didn’t choose to be an Episcopalian. I was raised that way.

(19:44):

It’s still an important part of my life. Many of the best things we do in life are not done of our own free will, and our own free will can often lead us to bad decisions if we neglect the fact that we exercise our freedoms as part of communities, and that we are judged on the results of our use of freedom by other people. So I think that was one mistake.

(20:15):

There’s no such thing as freedom, equality, self-government, the things that classical liberals prize outside of the nation state. It has never existed outside of the nation state. And it is, in the modern world, primarily a creation of the Anglo-American nation state, from the Magna Carta through thousands of incremental decisions that gave courts greater liberty from the political apparatus that resolved disputes between the individual and the community that gave people rights to trial by jury, to the enforcement of contracts, even if powerful people didn’t want those to be enforced.

(21:13):

Those are our actual freedoms. We can talk about, “I favor free markets. I favor free…” But the actual freedoms come from institutions that are artifacts of the nation state. When Adam Smith referred to the free market as the “natural system of liberty,” he was thinking of a form of natural law. He wasn’t saying that the law of the jungle leads to free markets. He understood that the free market was an artifact of the state.

(21:51):

So if we ask ourselves today, if you can accept my premise that strong nations are essential to the protection of freedom, and if nations fall apart and they’re definitely becoming weaker and weaker, if you accept my premise that our freedoms rely upon the state and they do not exist in a state of anarchy, what is the greatest threat that we face today in America? Are there too many restrictions on free enterprise? Or is it the decline of the family, the decline of religious belief and observance, the decline of local communities, terrible public schools, an education establishment that teaches young people to ignore or hate their own national history, a culture that has become coarse and violent and a popular culture which makes fun of middle-class morality, the rise of antisemitism on both the left and the right, the rise of tribal politics where your self-described identity is more important than your responsibilities to a larger community ranging all the way up to the federal government, the decline of Congress, its inability to serve as the mediator of our differences, and the construction of laws that fairly balance competing interests? All of those things, I believe, are threats to the nation and therefore are the true threats to our liberty today.

Mitch Daniels (23:53):

You’ve been candid about some evolution in your views, and I think you’ve given us a good sense of the general tenets of what you would call national conservatism. I want to ask you about, for instance, what I would call the state capitalism that the current administration has practiced, taking equity stakes in private corporations, demanding dividend payments from them, all these sorts of things. Is that consistent with your view of a new national conservatism or would you leave those policies out?

Chris DeMuth (24:34):

I think that by industrial policy, the government’s supporting large scale mobilization for specific national purposes, and today I would include countering the risk that China will outrun us in quantum computing and artificial intelligence, repatriation of certain manufacturing, pharmaceuticals, minerals. I think that it has been a terrible mistake for us to say that, well, in free markets, you just diversify your supply. And if we have a diversified supply chain, it’s not important if we actually know how to make pharmaceuticals. We can let other people do that and buy from them. It’s not important that we actually be able to manufacture things. We’ll just be a service industry. I think that those ideas were mistaken. There are many aspects of government involvement in the economy that national conservatives such as myself would favor. Now, the idea of the federal government taking stakes in particular companies, getting dividends, having investment go this way and that, that is a particularly risky form of industrial policy at its worst because it’s not simply picking winners and losers, but it’s actually taking investments and confusing the returns to risk taking.

Mitch Daniels (26:17):

Madison, among others, feared the mob, tried to design a system in which would limit the tyranny of the majority.

Chris DeMuth (26:31):

Right.

Mitch Daniels (26:31):

The risks that come with that. There are some very provocative thoughts these days. Martin Gurri is one who has asserted that the information revolution, by stripping away the monopoly, or at least the control, of information from institutions, from networks, from the other major elite institutions, has permanently changed the nature of things. In essence, the mob is now in charge of our national conversation, and therefore a lot of outcomes. What do you make of that? And were we better off when a limited number of institutions had the information, and therefore the authority that it conferred on them?

Chris DeMuth (27:27):

You quoted James Madison and we both revered James Madison and John Adams also feared the mob, but another great founder, Thomas Jefferson, thought that having a mob come along was good.

Mitch Daniels (27:42):

He was a fan of mobs.

Chris DeMuth (27:43):

On occasion he thought it was a good thing, because he understood the corruptions of power. And I would say that if there is one element that is most important in our founding, it is suspicion of power. We see that in the architecture of the Constitution, but we also see it in many other aspects of the system they put in place, which allow whatever the day’s establishment is to be challenged in ways that are impossible even in other advanced democracies, such as the UK and Europe. And I think that tension is a valuable thing, and I think we’re seeing a lot of that in recent years.

(28:35):

Have there been abuses? Have there been abuses of populism? There sure have. But the important thing is that the new populism, the rise of the mob has been as a result of reaction to the severe corruption of the elites. The elites became terribly disconnected from the interests of average people, and I would include the Washington establishment that I have been part of as a part of that problem.

(29:13):

Luckily in America, I think largely through the electoral college and federalism where we’ve got strong state governments, we have people coming in all the time. Andrew Jackson, Ronald Reagan, Jimmy Carter was another example. These governors that come in and break up the establishment with a bunch of views, which could often be called populist, are regarded as completely out of the question by members of the elites.

Mitch Daniels (29:50):

Before the lights came on, you gave an interesting thought. We were talking about the COVID experience.

Chris DeMuth (29:56):

Yes.

Mitch Daniels (29:56):

And the information that the public received at that time.

Chris DeMuth (30:00):

Yes, yes, we need elites. We have to have elites. It actually goes back to Aristotle and the idea of mixed government. He wasn’t for a pure democracy, but he wasn’t for a pure aristocracy either. He thought that what would balance the demos, what would balance democracy, was people of particular character, inheritance, and so forth. Since the late 19th century, our elites have been based on the idea of science, esoteric information devoted to what have turned out to be miracles in communications, public health, transportation, and entertainment. Science has done such wonderful things that the progressives brought it into government. If we have progress in science, in commerce, and in the arts, let’s have it in government too, they thought. So we’ve based our governing elites on the idea of specialized information. We have people who have gone not just to college, but to graduate school, and then done fellowships, and who know so much about biology, infectious diseases, climate change, and space travel.

(31:30):

And so we put so much of our governance in their hands. That is now under tension, not just from the rise of populism, but by the fact that information has become so widely available. The most important information that turned out to be most helpful. And if we think back about it, I actually found it helpful in the course of managing my own circumstances during COVID. And people in my family with little children that were being kept out of school found it useful in deciding when to reopen schools where they had some say about it. The information they relied upon was information that was being provided not by mobs on street corners, but educated people who understood infectious diseases, but were not part of the elite establishment and whose contributions such as the Great Barrington statement, the people in government tried to suppress, actively tried to suppress. They tried to keep it out of circulation. They didn’t want people to learn what turned out to be the truth. And that is now generally recognized.

Mitch Daniels (32:52):

When I ask whether we can be a successful society with no institutions commanding respect and authority, I wasn’t just thinking about public institutions.

Chris DeMuth (33:06):

Right.

Mitch Daniels (33:08):

And it’s absolutely been the lesson of history, that it’s nonsensical to talk about a society without elites. There will be elites. The question is what kind? You’ve called for a new set and maybe describe to us what they might look like. So let me ask you to close as we ask all our guests: in view of everything you’ve just said, shaking it all up, in 2050, will Americans be more free or less free?

Chris DeMuth (33:38):

We have a lot of challenges between now and then. We’ve talked about some of them, not others. You and I have been deficit hawks for a long time and we know that there’s going to be a very serious fiscal crisis in America that’s going to change things in unpredictable ways. So there are lots and lots of threats. 

Mitch Daniels (34:02):

I was going to get to that, but I’ll point out that it is exactly those kinds of events, as unfortunate as they are, that give rise to new elites. And you have said we need a new set of elites in the country. That would not be my preferred way of producing one, but it may be the most likely way.

Chris DeMuth (34:23):

My inclination is, this is kind of an easy formulation, but we faced very severe crises in the past and we have surmounted them and come out stronger. Today’s crises look bigger and more challenging simply because humanity has more power than it’s ever had before, and that includes power for bad as well as for good. But past crises, wars, technology, industrialization, the breakdown of the family, the rise of the workshop, which had many good things about it and many bad things, all of these seemed radically different, strange, a remaking of the world. The world has been remade several times in our two hundred fifty plus year history, and we’ve overcome it time and again.

(35:33):

So I think that a careful study of American history leads one to be, if not an optimist, just realize that our ancestors faced difficulties that to them must have seemed just as bad as the ones that we’re facing. The political and economic institutions that have been with us now for, I would say 400 years, because I would begin with the colonial period, have been what have actually taken us through a lot of mistakes where we had Scylla and Charybdis on either side and we had enough momentum to get through. And I would rely on those traditional institutions, not just free market capitalism, but also the institutions of representative government to get us through the difficulties that we’re facing now.

Mitch Daniels (36:35):

We will take that as a vote in the affirmative.

Chris DeMuth (36:39):

Okay.

Mitch Daniels (36:39):

And hope and trust that you’re right. Chris DeMuth, you’ve been one of our most insightful thinkers and commentators for a very long time. You’ve demonstrated in this conversation not only that you still got that game, but also that the thinking people need to constantly be open to changing their mind or to evolving in their thinking.

Chris DeMuth (37:03):

Yeah.

Mitch Daniels (37:04):

That’s a great example all by itself. So thank you for being with us. Thank the audience for joining us on this most recent edition of The Future of Liberty.

Chris DeMuth (37:15):

Thank you, Mitch.

Outro (37:16):

The Future of Liberty has been brought to you by Liberty Fund, a private educational foundation dedicated to encouraging discussions of the ideal of a society of free and responsible individuals.