America Became Rich Because of Liberalism

By Peter J. Boettke.

"March 9, 2026, was the 250^th anniversary of the publication of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. July 4, 2026, was the 250^th anniversary of the signing of the Declaration of Independence. These two documents are pillars of the great liberal tradition: free trade and economic freedom, the natural rights of each individual, and political freedom. Given the timing of publications, one cannot draw a direct line of influence from Smith’s scientific tract to the practical political demands of the Declaration. However, there is a great deal of evidence that the founding fathers knew of Adam Smith and the Scottish Enlightenment and drew inspiration from their works. My task here is not to revisit this question of influence, but to seek to find the common ground between the two documents we are celebrating this year, and to suggest how that common ground influenced the development of liberal political economy in the 20^th century in the hands of F. A. Hayek and Milton Friedman, the latter who won the Nobel Prize for Economics 50 years ago.

The great historian of the American Revolution, Gordon Wood, argued in The Radicalism of the American Revolution that what is most overlooked in discussions is the radical transformation of society that resulted. Colonial America was a society of status, of privileges, of station. Patronage and personal favoritism by those with power played a major role in social mobility—to the extent that it existed. This social system would all be transformed by the Revolution.  One prominent example of the legal transformation was the abolition state by state of the practice of primogeniture between 1777 to 1798.  Not only did this change the laws of inheritance, but transformed the meaning and use of property, encouraged entrepreneurship, credit markets and social and geographic mobility. Legal distinctions based on rank disappeared, and economic opportunities were based in interest, aptitude and talent rather than birth. Certainly not perfectly, it must be acknowledged. But in a far more sweeping nature than anywhere else in the world, ordinary individuals were enabled to “give it a go,” as the historian Deirdre McCloskey likes to stress about the ascendancy of the Bourgeois Era. Almost overnight, Wood argues, Americans became “the most liberal, most democratic, most commercially minds, and most modern people in the world.”

As a result, America became the richest country in history over the next 250 years. It did so without an aristocracy, and without central planning or a comprehensive blueprint by the governmental authorities. The Revolution succeeded because it created the institutional conditions for commercial civilization. It unleashed the creative powers of a free people to a greater degree than had ever been experienced before. As Hayek would stress, the transformation for a society of status to one of contract is critical to experiencing modern economic growth. And this is only possible if the governing system seeks to eliminate privileges and instead binds itself to the rule of law.

The American Constitution, democratic self-governance, geographic advantages, and abundance of resources all played a role, but it was the transformation of society that drove progress. The system of social hierarchy, deference, patronage, and inherited privileges was transformed into a system of equality before the law, civil society consisting of voluntary association, social mobility, entrepreneurship and dignity and respect for ordinary work. Commercial activity ceased being morally suspect and the marketplace was characterized by entrepreneurs, shopkeepers and independent participants rather than clients dependent on the good graces of the privileged and powerful elite.

It might make sense to pause for a minute and reflect on Smith’s choice of words for the title of his great treatise: “An Inquiry,” not “The Theory,” followed by “Into the Nature and Causes of the Wealth of Nations,” not merely “Into the Wealth of Nations.” Smith’s work was no doubt concerned with material abundance, but not exclusively so. The division of labor, as reflected in Adam Smith’s depiction of the production of a common woolen coat, wasn’t merely about productive specialization, but the establishment of peaceful social cooperation among strangers. Rather than the traditional society of domination, commercial society is based on mutually beneficial exchange. Commerce rewards prudence, trustworthiness, reliability, reputation, and self-command. The market process in this regard is a civilizing influence by taming the passions and encouraging cooperation with others of great social and physical distance. Trading, not raiding, characterizes commercial life; just as making, not taking, is recognized as the way to generate wealth.

Smith was writing at the dawn of liberty. The American experience in the centuries after that Revolution is the realization of that liberty. Again, it has never been perfect and is still not perfect, but it always strives and bends toward that Smithian liberal plan of liberty, equality and justice. In the 20^th century, the two most important political economists pressing these Smithian points and the exemplary importance of the American project were Hayek and Friedman, perhaps most importantly in their works The Constitution of Liberty and Free to Choose.

My choice of books to link these two together is somewhat unusual because most writing an article such as this would focus instead on the relationship between Hayek’s The Road to Serfdom and Friedman’s Capitalism and Freedom and the intimate connection between economic freedom and political freedom. These works, of course, are foundational to any discussion of the liberal principles of political economy and justice. But I chose The Constitution of Liberty and Free to Choose because both can be read as making significant contributions to the field of constitutional political economy (most associated with another University of Chicago product and fellow Nobel Prize winner, James M. Buchanan).

Critical to this specialized field of inquiry is how the establishment of general rules creates the conditions conducive the progress. To Hayek, America’s uniqueness was in creating a constitution and embracing institutions that formed the “machinery of government,” where millions of economic and social experiments could be going at the same time. America—however imperfect—embodied the principles of an open commercial civilization where individuals will discover opportunities, tinker and innovate, and develop new technologies. Economic freedom is not merely permission to give it a go, but a discovery procedure to learn what is worth going for in a way that nobody can know outside of the market process itself.

Friedman rightly contrasts the power of the market with the tyranny of control. The maintenance of commercial society requires limits on political power, competition to limit coercion, and choice to preserve and protect liberal pluralism. Economic freedom is not only efficient, it disperses power in society. It erodes privileges. It creates space for ordinary individuals to achieve extraordinary things. Economic freedom results from the security of property rights, freedom of contract and association, stable money and fiscal responsibility, all embodied in the rule of law.

This to me is the enduring lesson in political economy that we should derive from reflecting on the twin 250^th anniversaries and allow to guide us through our contemporary debates which too often seem to have forgotten these. Let me add one other aspect that is too often overlooked. When Hayek founded the Mont Pelerin Society, one of the names he toyed with was the Acton-Tocqueville Society. This was rejected by the original group for a variety of reasons, but it does reflect Hayek’s thinking. In the context of this article, I think we can argue that Alexis de Tocqueville provides a bridge between Wood’s historical account of the American Revolution and Hayek and Friedman’s theoretical accounts of economic and political freedom. Tocqueville observed what Wood described as the transformation of American society: a social order characterized by vibrant civil society of voluntary associations, social mobility, local initiative, and unbounded energy. Hayek explains to us why this decentralized dynamism is a source of discovery and continuous learning how to better pursue productive specialization and realize the gains from peaceful social cooperation. Friedman explains how the constitutional structure of government, by limiting power and privileges, preserves the open society and its properties of creativity, innovation and social and material progress.

Both the left and right in our current political and intellectual culture have abandoned these principles, at least in their rhetoric. New York Mayor Zohran Mamdani and Vice President J. D. Vance have recently gone out of their way in respective speeches to dismiss the ideas of Hayek and Friedman. Critics of neoliberalism repeatedly target Hayek and Friedman without seemingly any sense of understanding the subtleties and nuances in their arguments. Post-liberals are even worse. Thinkers like Patrick Deneen argue that free market policies result in the erosion of community, destroy the social fabric, and increase inequality.  The individual becomes isolated and lacks any great purpose as a result. The remedy offered is the abandonment of the free market system with its emphasis on material growth and the adoption of public policies that stress virtue, local obligations, and the moral community.  Scholars under the New History of Capitalism movement see the coercion and abuse of corporate and state power as attributes inherent in capitalism. To both groups of critics, support for capitalism must either elide over these abuses or even justify them as the lesser evil to growth.

These criticisms are grounded in a misunderstanding of the argument for the liberalization of markets from David Hume and Adam Smith to F. A. Hayek and Milton Friedman.  Markets are no doubt vehicles for efficiency in exchange and production and the creation of great material abundance, but that isn’t the side of markets that was stressed by Hayek and Friedman, let alone Smith. Smith was a champion of the doux commerce thesis that commerce civilized. Thomas Paine, of American Revolution fame, wrote that: “If commerce were permitted to act to the universal extent it is capable of, it would extirpate the system of war…” Commercial life civilizes people. Peaceful social cooperation among strangers replaces violence and conquest. Montesquieu wrote that “wherever the ways of man are gentle, there is commerce; and wherever there is commerce, there the ways of men are gentle.”

And certainly, by solving the violence trap, humanity was able to generate the wealth of nations, and this has been a boon to the flourishing of people everywhere that should be celebrated, but which capitalism’s critics so often seem to overlook or read as evidence of rapacity. In recent history, capitalism and trade has led to the great escape from abject poverty. When I was first learning economics in the 1980s, around 40% of the global population lived in extreme poverty (less than $2/day). Today that number is under 10%. Again, there is still work to be done to achieve Smith’s liberal plan of liberty, equality and justice for all. But we are farther along the path to that achievement than at any time in recorded history. The arguments of the great classical liberal economists from Smith to J. S. Mill, as well as the refinements that were made by great liberal economists of the 20^th century such as Frank Knight, Ludwig Mises, F. A. Hayek and Milton Friedman, are critical to our scientific understanding and our practical appreciation of freedom and free enterprise. These ideas of property, contract and consent are embedded deeply in the American Project, and the promise of that project is one of the Open and Opportunity society.  The direction forward is not to turn our backs on the American Project and reject the principles of free markets and entrepreneurialism, but to encourage the principles on which our democracy was founded and that, for all of its imperfections and momentary regressions, has created one of the wealthiest, free, and, yes, egalitarian nations in the history of civilization."

Billionaires are consistent with the institutions that underlie economic prosperity.

See Billionaires by Tino Sanandaji & Peter T. Leeson.

"Existing studies of entrepreneurship focus on entrepreneurs whose individual contribution to wealth creation is typically trivial: self-employed persons. This article investigates entrepreneurs whose individual contribution to wealth creation is enormous: billionaires. We explore the relationship between economic development, institutions, and these contrasting kinds of entrepreneurs. We find that the institutions consistent with self-employed entrepreneurs differ markedly from the ones consistent with billionaires. Further, only the latter are consistent with the institutions that underlie economic prosperity. Where well-protected private property rights and supporting, market-enhancing institutions flourish, so do billionaires. But self-employed entrepreneurs do not. Where private property rights are weakly protected and interventionist institutions flourish, so do self-employed entrepreneurs. But billionaires do not."

The Milei Miracle, Part V

By Dan Mitchell.

"The world’s worst-performing economy for 100 years has – in a remarkably short period of time – become an amazing case study of economic liberalization.

Thanks to President Javier Milei, Argentina is now enjoying an economic miracle.

In Part V of this series (previous versions here, here, here, and here), we’re going to illustrate Milei’s accomplishments with a series of tweets.

Today’s column will focus on bad things that are falling (a future column will highlight good things that are rising).

We’ll start with falling poverty.

Next we have falling debt.

And falling deficits.

By the way, all this progress occurred because of spending restraint. Milei is not making the mistake of higher taxes.

Anyhow, with better fiscal policy, this understandably leads to falling country risk.

Next, let’s look at falling bureaucracy.

And we’ll close with falling inflation.

Javier Milei is easily the world’s best leader.

A steroid version of Reagan and Thatcher."

A Tale of Two Borders: Ceuta and Gibraltar

Why did removing border fences in Gibraltar spark no migration crisis, while Ceuta's fortified perimeter failed?

By Daniel Sánchez-Piñol of The Independent Institute.. 

"Just days after Spain celebrated winning the FIFA World Cup, it found itself making international headlines for a very different reason. Tens of thousands of migrants crossed from Morocco into Ceuta—Spain’s small autonomous enclave on the North African coast—overwhelming local resources and sparking an immediate crisis.

The political reaction was immediate. Criticism focused almost exclusively on Spain’s failure to secure its border. Because many migrants had bypassed the perimeter by swimming around it, Spanish officials quickly announced plans to construct new maritime barriers. To much of the international community, the lesson seemed simple: if the border had taller fences on land, better barriers at sea, updated intel, tighter controls, and tougher enforcement, the tragedy could have been prevented.

Spain took the heat. But the debate largely ignored a more fundamental question: Why are tens of thousands of Moroccans willing to risk their lives simply to leave their country?

The answer lies a few miles away, on the other side of the Mediterranean.

Only days before the Ceuta crisis, Gibraltar, the British Overseas Territory bordering southern Spain, removed physical fence barriers separating the two jurisdictions. There was no migration crisis. No sudden wave of Spaniards poured into Gibraltar, nor did Gibraltarians rush into Spain. Daily life continued uninterrupted; crossing the border simply became faster and easier.

Why did one border descend into chaos while the other barely made news?

The answer lies in institutional convergence.

In the mid-twentieth century, Spain and Morocco were not dramatically different. Authoritarian regimes governed both and relied on protectionist policies, running economies that rewarded political connections over entrepreneurship. In the early 1950s, Spain’s income per person was roughly twice Morocco’s—a modest gap by modern standards.

Today, Spain’s GDP per capita is roughly four times higher than Morocco’s. Meanwhile, the economic gap between Spain and Gibraltar has narrowed dramatically. That divergence explains why one border facilitates routine commerce while the other attracts desperate migration.

Spain’s transformation was no accident. Its 180-degree pivot began when the United States and the broader Western alliance sought to integrate the nation into a liberal democratic order. Following the 1953 Pact of Madrid, international isolation began to end. Spain joined the United Nations in 1955, and the 1959 Stabilization Plan abandoned decades of autarky in favor of fiscal discipline, trade liberalization, foreign investment, and market competition. Following Franco’s death, the democratic transition and subsequent integration into the European Economic Community anchored Spain’s rule of law, curtailed rent-seeking, and solidified its market economy.

Morocco has undertaken economic and political reforms of its own, but structural barriers to opportunity persist. Centralized power, militarized state, corruption, and cronyism continue to constrain entrepreneurship and job creation. These institutional weaknesses help explain why so many Moroccans look abroad for a future.

The contrast offers a powerful lesson. Paradoxically, the most effective long-term policy against irregular migration is not an impenetrable wall, but the expansion of institutions that generate opportunity: secure property rights, competitive markets, and the rule of law.

That was once a central objective of Western policy. During the Cold War, the United States and Western Europe invested considerable diplomatic, economic, and political capital in helping nations like Spain converge toward liberal market democracies. Today, that vision has largely been set aside in favor of a narrower focus on controlling borders.

But borders do not exist in isolation. What matters is what lies on either side of them. When institutional and economic gaps are wide, migration pressures grow, and borders become harder to enforce. When those gaps narrow, borders become easier to secure because fewer people have reason to cross them illegally.

The West cannot fence its way out of a problem by treating symptoms instead of causes. Ceuta and Gibraltar show that the most important border is still the institutional one."

China's middle class is below the US poverty line

See 2026’s Counter Tweet of the Year? by Dan Mitchell.

"Regarding Chinese economic policy, I’m both a cheerleader and a critic.

On the positive side, I applaud how hundreds of millions of people in China have escaped poverty.

On the negative side, I complain that the economy is operating way below its potential.

Here are four points I shared earlier this year, and they summarize my view on what’s good and bad.

Before the final point, I probably should have added another sentence, saying something like “China is now a middle-income country instead of a poor country.”

For today’s column, I want to provide some data to highlight the need for more economic freedom in China – assuming, of course, the goal if for China to become rich.

And I’m going to share two charts posted on Twitter/X by @3RenChengHu. I don’t know this person, so I normally would be reluctant to share a stranger’s data, but I am very familiar with Our World in Data, a group from Oxford University with very reliable numbers (and you can access the data in today’s column by clicking here).

Here’s the first chart, which shows the percentage of the Chinese population that it poor based on various measures (ranging from less that $3 per day to less than $40 per day).

I added (in green) my rough guess that the average person in China is at $15 per day.

As you can see, the Chinese numbers have improved dramatically since 1981.

But could they be better? I think the answer is yes, emphatically yes.

In part, this is because of the research I’ve shared showing how Chinese people are rich everywhere but China.

But let’s also look at the second chart shared by @3RenChengHu.

It shows the same poverty data, but for the United States instead of China.

And I’ve added my two cents (in green, again) to note that only a very tiny share of Americans live on $15 per day.

I’m not sharing all this data to be jingoistic. Just as I think China has bad policies that are restricting growth, the same is true for the United States.

But the relative rankings do show that the U.S. is benefiting from more economic freedom, both today and through history.

For what it’s worth, I would like policy makers in both countries to look at these numbers and have them decide that more economic liberty is the recipe for making their respective nations richer.

But I’m also sharing this data because @3RenChengHu’s tweet was actually a counter tweet. As you can see, he was responding to a silly tweet from @TheDanteMunoz about the supposed superiority of socialism. 

At the risk of understatement, @3RenChengHu slammed @TheDanteMunoz to the canvas.

P.S. Other counter-tweet-of-the-year contestants can be viewed here, here, here, and here."

Counties that build data centers are seeing new housing, higher home values, lower unemployment and more job growth

Tweet from Sara Eisen. 

 

 

The ancient fear of overpopulation is rendered unwarranted by innovative free markets

By Chelsea Follett via Cafe Hayek.

"Chelsea Follett writes insightfully about the ancient fear of overpopulation – a fear rendered unwarranted by innovative free markets. Here’s her conclusion:

Globalized markets and modern technology have accomplished what even Zeus could not in the wildest dreams of the ancients. Humanity has pushed back the constraints that once seemed as fixed and inescapable as a hero’s fate in a Homeric epic. We now easily feed a population perhaps 100 times larger than the one known to the ancient Greeks. If only public wisdom would catch up."

Illiterate and innumerate Americans earn as much as average British workers (and average workers in other G-7 nations)

See The United States vs. Europe, Part VI by Dan Mitchell.

"What’s the best public policy:

1. A small-sized welfare state such as Singapore?
2. A medium-sized welfare state such as the United States?
3. A large-sized welfare state such as those in Europe?

I prefer Option #1. Sadly, almost nobody in Washington is pushing for that choice.

The debate in D.C. is about whether the U.S. should expand the burden of government (per-child handouts, Medicare-for-all, green new deal, etc) and become more like Europe (option #3).

I’ve written a five-part series (here, here, here, here, and here) explaining why that’s a bad idea.

All of those columns cite data showing that the United States is richer than Europe and that the gap is growing. The should-be obvious takeaway is that it would be a mistake for the U.S. to copy the policies that have resulted in lower levels of prosperity.

Today’s column will be Part VI in this series and it’s motivated by two amazing charts from the U.K.-based Financial Times. As you can see, illiterate and innumerate Americans earn as much as average British workers.

 

The charts also show that Americans at all levels of literacy and numeracy out-earn their British counterparts.

And it’s not just that the United States is out-performing the United Kingdom.

Here’s the same data for the G-7 nations (the major countries of Europe plus Canada and Japan). All of those countries, even Germany, lag way behind the United States at every level of literacy and numeracy.

 

The numbers for Italy and Japan are especially shocking. Illiterate and innumerate Americans have higher wages than university-level workers in those two nations.

But the data for the other G-7 nations is also underwhelming. Americans with the lowest level of education earn more than average workers in England, France, and Canada. And they almost earn as much as average workers in Germany (based on what’s happening in Germany, I expect that nation’s numbers to deteriorate in the future).

Looking at all this data, I’ll ask a different version of the questions I presented at the start of today’s column: If the goal is higher wages for workers, especially workers with limited skills, is it better to have smaller government or bigger government?"

Red States Are Winning the Prosperity Race

By Richard K. Vedder & Nicholas Jadwisienczak.

"Republicans disheartened by growing fears of electoral losses at the federal level this fall can take some solace in evidence from a new, soon-to-be-released study that we coauthored for Unleash Prosperity, a group focused on promoting pro-growth policies. The graph below shows the results from that study, revealing that in this century economic growth has been substantially greater in the Republican Red states.

The new study focuses on the more recent years 2020-2024, using modern statistical techniques to show that even after other factors impacting economic change—like climate, the proportion of the population working in manufacturing or producing oil, or the degree of urbanization—are taken into account, Republican-dominated states grew sharply faster than Democratic oriented ones. Controlling for several potential competing explanatory factors, solidly Red states typically had over 25 percent more growth in personal income in the first part of this decade than their Blue counterparts.

Why? Republicans tend to have greater faith in markets to allocate resources and distribute income and wealth and are less inclined to tax the public heavily to fund massive social services, which research shows weaken work effort and business investment—key components in economic growth. For example, the highest income earners in heavily Blue New York City pay over 14 percent in state and local income taxes on some of their income, compared with zero in a more Red city like Miami or Dallas. All eight states with zero state income tax are Red or, in one case, New Hampshire, a swing state that has a history of electing both Democratic and Republican political leaders.

 

Our statistical analysis confirms that one of the biggest sources of income growth in the Red states has come from the in-migration of generally highly productive people fleeing high-tax Blue States. The world’s richest man, Elon Musk, fled deeply Blue California for Red Texas (after earlier moving to the U.S. from South Africa), while leading financial guru Ken Griffen fled Blue Illinois for much Redder Florida. Census Bureau data show that from 2020-2025, Florida received net over two million migrants, divided nearly equally between immigrants moving to the Sunshine State from other countries, and native- born Americans fleeing states like California (which had a massive outmigration of nearly 1.7 million Americans to more congenial locales).

Our study directly refutes a quality-of-life ranking by CNBC that faced conservative backlash after stating that the 10 worst states in the U.S. to live in were Republican states. Florida Governor Ron DeSantis lashed out at the network over that study, calling it “nonsense.”

Our study shows that it was not just productive workers and their families that moved to these Red states, but capital resources as well. For example, Texas recently surpassed California for having the most corporate headquarters among Fortune 500 companies. Companies and people alike vote with their feet, seeking relief from overly expensive and inefficient government programs.

But isn’t a major reason people and companies are moving South the warmer temperatures? Not really.

One of the leading states in out-migration has been strongly Blue but climatically heavenly Hawaii, while such Red states with bitter winters like Montana and South Dakota had significant in-migration from other, often Blue, states.

To be sure, state-based public policy was not the sole factor in explaining differential rates of economic growth. Manufacturing-heavy states like Pennsylvania, Ohio, and Michigan were hurt by the rise of modern manufacturing in emerging nations like China and India, which had lower-cost labor.

A high level of unionization (typically far more prevalent in Blue states) was associated with lower growth, while growth was enhanced by having a large proportion of immigrants in the population, consistent with other research showing immigrants typically have high rates of labor force involvement and are increasingly relatively highly skilled, including such economic superstars as Musk (Tesla, Space X), Nelson Huang (Nvidia) and Microsoft CEO Satya Nadella.

More urbanized areas, controlling for other factors, typically had lower rates of growth as well, probably at least partially because they were also more likely to be associated with far-left governments like Mayor Zohran Mandami’s New York City.

Our little study comes at a most appropriate time, our nation’s 250th birthday, as it clearly demonstrates some of the genius of our nation’s Founders. They put together a federal system of government that largely eliminated legal hassles like passports and work permits for those seeking to move to a more promising environment. As Justice Louis Brandeis memorably said, America’s federal system was one where “a single courageous State may, if its citizens choose, serve as a laboratory and try novel social and economic experiments without risk to the rest of the country.”

Our national government would do well to learn from the actions of the states, benefiting from the presence of 50 laboratories engaging in sometimes novel and innovative experiments that other states could learn from, not to mention the federal government in Washington, D.C."

Businesses leaving Illinois have rapidly accelerated

 Tweet from Brian Costing.

 

Chile's free-market reforms still seem to be working

Tweet from Steve Hanke.

"Chile still basks in the afterglow of the free-market reforms put in place by the Chicago Boys. Chile's neighbor, Argentina, the world's biggest deadbeat, struggles under the weight of a mountain of debt." 

 

Poland's GDP took off when they adopted economic freedom

Tweet from Alex Stapp.  

 

Private Property, Liberalism, and Human Flourishing

Private property enables individuals to pursue happiness through their own free choices. It also shields our individual and institutional projects from arbitrary power

By Alexander William Salter. Excerpt:

"For thousands of years, human living standards were basically stagnant: in inflation-adjusted terms, world GDP per capita fluctuated around $1,500 per year. In the nineteenth century, commercial innovations, including widespread protection for private property rights, gave rise to the Industrial Revolution. This resulted in history’s only sustained reduction in human poverty. In the United States, for example, GDP per capita in 1800 had risen to approximately $2,500 per year. It more than tripled over the next century, to $8,000 per year. Near-continuous economic growth yielded a figure of nearly $50,000 per year by 2000, and nearly $70,000 today. 

Other western nations that embraced capitalism enjoyed similar increases in material prosperity. Asian nations, such as Japan, South Korea, and (more recently) China, have also benefited from embracing private property rights. These successes strongly suggest there is something universal about the relationship between private property and economic wellbeing. It’s not culturally contingent.

Our historically unprecedented level of wealth only exists because private property enables an extensive division of labor. Exponential gains in per capita GDP would be impossible, and indeed, they have never occurred in a sustained way without productivity-enhancing specialization and trade. This decentralized process for creating and exchanging wealth requires coordination. As Ludwig von Mises recognized, private property rights are vital. Without private property, trade and markets could not exist. And without markets, there would be no market prices—critical indicators of resource value in varying lines of production. Profit and loss accounting could not be meaningful without prices, meaning businesses would have no reliable way to ascertain whether they were satisfying consumer wants. It is the system of market prices, adjusting in response to supply and demand changes, that gives commercial society its unique power to create wealth. Private property is the keystone: it holds the whole market edifice together.

The greatest benefits of the price system often emerge during times of turbulence. When war between the United States, Israel, and Iran choked off shipping through the Strait of Hormuz in early 2026, the price of crude oil spiked. Refiners, shippers, and drillers across the world rerouted and searched for new supply, responding to the price shock without needing to know anything about geopolitical stakes or possible resolutions. The price carried the knowledge so that they did not have to. 

It may seem strange to use hardship to illustrate the importance of private property and prices. But in fact, it reveals why they matter. Oil became scarcer as a result of the war. That made everyone in the world poorer. Nothing can change that so long as the conflict continues. Instead, the price system allows economic actors oceans apart to find and pursue least-cost adaptations. Non-market and non-price rationing work poorly on this scale. At least with property and prices, we know where we need to change.

Private property buttresses the market process in several other ways. Building on Mises, F. A. Hayek realized that prices allowed households and firms to benefit from each other’s private and often tacit information. The price system, founded on private property, thus functions as a powerful communication and feedback system. Ronald Coase argued that market values for owned resources allowed conflicting parties to resolve their disputes by bargaining. Armen Alchian, William Allen, and Harold Demsetz pointed out that firms’ property rights to their residual income aligned the interests of producers with consumers, and that the firm itself, as an organizational form, was possible only because private property allowed for the necessary contractual structures. The immense productive capacity of contemporary capitalism, which we often take for granted, relies on practices rooted in private property.

Human flourishing obviously depends on more than material wealth. “Man does not live by bread alone.” Yet he does need bread to live. The material abundance created by markets keeps us fed, sheltered, clothed, literate, healthy, and entertained. It also provides the means for us to pursue meaningful artistic, intellectual, and moral projects. Private property is the reason we can have all of these things."

What Would Jefferson and Madison Make of Musk and Altman?

America’s Founders and Adam Smith knew better than to entrust the future to philosopher-kings

By Jason Riley. Excerpt:

"Theories about the need for a “philosopher king” or “great man” to advance society date back centuries. Intellectual figures from Plato to Machiavelli and Thomas Carlyle emphasized personal traits such as superior wisdom and exceptional moral character in choosing leaders. The idea was to find these extraordinary men, put them in charge, and align policies with their understanding of the common good. Adam Smith, by contrast, argued that free enterprise and the uncoordinated pursuit of individual self-interest would lead to better outcomes for more people. Societies should rely on market forces and voluntary exchange rather than on do-gooders.

March marked the 250th anniversary of Smith’s seminal text, “The Wealth of Nations,” published the same year as the Declaration of Independence. As we reflect on America’s milestone, it’s worth noting that the Founders shared Smith’s skepticism of philosopher-kings and the approach to choosing leaders that today’s AI poohbahs seem to have embraced.

“What the American Constitution established was not simply a particular system but a process for changing systems, practices, and leaders, together with a method of constraining whoever or whatever was ascendent at any give time,” Thomas Sowell wrote in his book on social theory, “The Quest for Cosmic Justice.” “Viewed positively, what the American revolution did was to give the common man a voice, a veto, elbow room and a refuge from the rampaging presumptions of his ‘betters.’ ”" 

More capitalist countries have lower income inequality

Tweet from Vlad Tarko. 

"More capitalist countries have lower income inequality, not higher. High income inequality is caused by cronyism which goes hand in hand with highly regulated markets. Welfare states also lower inequality, but you need free markets wealth to have generous welfare states."

 

"You can't derive causality from raw data. Those scatter plots are just a description of reality. If your causal picture of the world makes you expect the opposite patterns, you should re-evaluate. The cronyism comment is an alternate causal theory that fits the pattern.

In any case, if you think I'm deriving my whole world view from a few scatter plots, that's a very uncharitable interpretation. No, that's not what I'm doing. While, yes, empirical evidence is very important. Too many people have theories that are intuitive but flat out wrong.

The correlations on the upper-left and lower-right are actually quite strong. The other two less so, which further enhances the point! 1 Size of govt weakly correlated with equality, unless in rich country. 2 Even in rich countries, capitalism doesn't increase inequality."   

Malta: A Free-Market Success Story

By Dan Mitchell. 

"I’m in Malta for a bit of research before speeches in Amsterdam and Reykjavik as part of the Free Market Road Show. 

So today is a good opportunity for a column on Malta’s rather-successful economy (something I’ve done for other countries, such as Poland, Chile, Botswana, Singapore, and Estonia).

Let’s start by looking at Malta’s score from the latest edition of Economic Freedom of the World.

Malta is ranked #18, putting it easily in the top quartile.

It gets very good scores in every category other than fiscal policy (somewhat similar to Nordic nations).

What are some of the best features of Maltese economic policy? Let’s look at some excerpts from a column in The Business Picture by Nima Sanandaji.

"…while the big economies of Europe are stagnating, several of the smaller ones are outpacing the US. Malta is the best example, since it led the European growth league in 2024 with a five per cent growth. …Malta is succeeding thanks to competitive taxes and regulations, combined with talent supply, which make it a growing brain business jobs hub. …The share of adults employed in these jobs has increased substantially over time. Currently 9.5 per cent of adults in Malta are employed in highly knowledge intensive jobs. After Switzerland, Ireland and the Netherlands, this is the highest rate in Europe. …Large economies like Greece, Spain, Italy and France have due to regulatory and tax burdens stagnation in share of adults in knowledge intensive jobs. The same countries also struggle with economic growth and job creation."

I’m not surprised that Malta is growing faster than the United States. It’s a classic example of convergence.

What’s more interesting is to look at examples of divergence.

Here’s a chart, based on the Maddison database, showing Malta’s long-run performance (in red) compared to regional competitors, as well as a sampling of other nations.

 

"A few years after World War II ended, Malta was very poor. It ranked lower than Madagascar and its level of per-capita GDP was less than half of Greece.

Now it is has shot way past those two nations, as well as other countries that used to be richer.

Amazingly, Malta has almost caught up with Italy, which had nearly four times as much per-capita GDP back in 1950.

Does this mean Malta has perfect economic policy? Of course not. But it does have better economic policy than most other nations, especially its Mediterranean neighbors.

The moral of the story is that there’s a recipe for growth and Malta is doing a decent job of following the recipe. Assuming they want prosperity, other nations should do the same thing."

What Happens When Europeans Find Out How Poor They Are?

The Continent trails far behind U.S. economic output. Politics is bound to catch up sooner or later

By Joseph C. Sternberg. Excerpts:

"per capita gross domestic product: $94,400 in the U.S., according to the International Monetary Fund, compared with $65,300 in Germany, $61,000 in the U.K. and $52,000 in France."

"From a fairly narrow edge throughout the 1980s, the gap widened a bit in the 1990s. Since 2007, however, European per capita incomes have more or less stagnated while the U.S. has enjoyed another growth spurt."

"Switzerland amps up its per-capita GDP to $126,000 by attracting finance and pharma."

"The wealth skewing American per capita economic data is a result of innovation and entrepreneurship. Europe lacks America’s per capita output not because it lacks American tech companies and billionaires but because it lacks American-style productivity growth capable of creating tech companies and billionaires in Europe."

"On average, [British] respondents thought that if the U.K. were a state, it would be the seventh-richest in terms of per-capita GDP, behind the likes of New York and California. The reality is that Britain is toward the bottom of the table, roughly on the level of Mississippi." 

"Using the PPP metric, U.S. GDP per capita is $94,400, Germany’s is $76,800, Britain’s is $67,600, and France’s is $68,600."

"That means, broadly, that a nominal per capita income of $61,000 in the U.K. allows a Briton to consume the same amount of goods and services that would cost $67,600 in America. But that’s merely a different way of stating Europe’s problem. Europe’s economies look healthier in PPP terms to the extent a lower price level allows households to stretch their euros and pounds further. Those lower prices reflect Europe’s lower productivity. Meanwhile nominal GDP expresses Europe’s ability to consume global resources, which is lagging." 

The Growing State Tax and Jobs Divide

On April 15, see how job growth has changed in high- and low-tax states

WSJ editorial. Excerpts:

"progressive states . . . tax their rich and middle classes more. 

"small businesses . . .typically pay tax at their state’s individual rate."

"Eight states—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas and Wyoming—have no income tax. On the other end of the spectrum are New York (top state and local individual rate 14.8%), Oregon (13.9%), California (13.3%), Hawaii (11%), Minnesota (10.85%), New Jersey (10.75%), Massachusetts (9%), Washington (9%) and Vermont (8.75%)."

"Private job growth outside of social assistance and healthcare—which rely heavily on government funds—has been paltry in these states since January 2020: Hawaii (-3.8%), Oregon (-3%), Vermont (-1.7%), Massachusetts (-1.4%), New York (-1.3%), California (-1.2%) and Minnesota (-1%)."

"stronger job growth in lower-tax states: Texas (10%), Florida (8.5%), North Carolina (7.9%), Arizona (7.3%), Tennessee (5.7%), Alabama (4.3%) and New Hampshire (1.6%)." 

The False Promise of Gleneagles

Misguided Priorities at the Heart of the New Push for African Development

By Marian L. Tupy of Cato. 

"Executive Summary 

"In response to persisting poverty in Africa, representatives from the world’s eight leading industrialized nations—Germany, Canada, the United States, France, Italy, Japan, the United Kingdom, and Russia—met in Glen- eagles, Scotland, in 2005 and agreed on a three-pronged approach to help Africa. They would increase foreign aid to the continent, reduce Africa’s debt, and open their markets to African exports. Unfortunately, aid has harmed rather than helped Africa. It has failed to stimulate growth or reform, and encouraged waste and corruption. For example, aid has financed 40 percent of military spending in Africa. Similarly, debt relief has failed to prevent African countries from falling into debt again. Trade liberalization has the greatest potential to help Africa emerge from poverty. Yet that is where the least amount of progress has been made. Negotiations on trade liberalization have ground to a halt, and the threat of protectionism looms large as the current global economic slow- down worsens. The Gleneagles Summit, for all its good intentions, gave rise to unrealistic expectations. The heavy emphasis on aid and debt relief made Western actions appear to be chiefly responsible for poverty alleviation in Africa. In reality, the main obstacles to economic growth in Africa rest with Africa’s policies and institutions, such as onerous business regulations and weak protection of property rights. Africa remains the poorest and least economically free region on earth. The West should do all it can to help Africa integrate with the rest of the world. It should eliminate remaining restrictions on African exports and end Western farm subsidies. Africans, however, will have to make most of the changes needed to tackle African poverty."

The Washington consensus works: Causal effects of reform, 1970-2015

By Kevin B. Grier & Robin M. Grier. From Journal of Comparative Economics.

"Abstract

Traditional policy reforms of the type embodied in the Washington Consensus have been out of academic fashion for decades. However, we are not aware of a paper that convincingly rejects the efficacy of these reforms. In this paper, we define generalized reform as a discrete, sustained jump in an index of economic freedom, whose components map well onto the points of the old consensus. We identify 49 cases of generalized reform in our dataset that spans 141 countries from 1970 to 2015. The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10- year windows. The result is robust to different thresholds for defining reform and different estimation methods. We argue that the policy reform baby was prematurely thrown out with the neoliberal bathwater." 

Highlights

         Sustained economic reform significantly raises real GDP per capita over a 5- to 10-year horizon.

         Countries that had sustained reform were 16% richer 10 years later.  

        Despite the unpopularity of the Washington Consensus, its policies reliably raise average incomes."

Also see What is the “Washington Consensus?” by Douglas A. Irwin and Oliver Ward. Excerpt:

"The main Washington Consensus policies include maintaining fiscal discipline, reordering public spending priorities (from subsidies to health and education expenditures), reforming tax policy, allowing the market to determine interest rates, maintaining a competitive exchange rate, liberalizing trade, permitting inward foreign investment, privatizing state enterprises, deregulating barriers to entry and exit, and securing property rights."