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Free Market Threats Part Three: Returning to "trust" as the foundation.

Our last post in this series began by asserting that there is a common foundation of trust necessary in both the role of a fiduciary and in the successful functioning of a representative democracy (or republic) like that of the United States.

In the last few years we have seen, both in our government and in the field of employee benefits and financial advice more broadly, significant assaults on that foundation. These were, in our opinion, the extensions of a culture of lawlessness and self-interest that is responsive not to the broad interests of society but to narrowly focused interests – what James Madison, in Federalist #10, and a broad array of his contemporaries called “factions.”

For the last couple of years I’ve been reading, re-reading or listening to books on the founding period of the United States that are providing me with insight into our time that I never anticipated. Two, Bernard Bailyn’s Ideological Origins of the American Revolution and Gordon Woods’ The Creation of the American Republic, are now classic, almost canonical, texts. Others are incredible works of more recent scholarship that richly reward close attention. [1]

In the course of my reading I’ve been struck by how significantly the resistance and rebellion of the American colonists was influenced by their sense that Britain, the seat of government in their world, had been corrupted by the easy commerce – which word I use very intentionally – of government, profit-seekers and the self-interested.

Capitalism as a means of production and wealth creation was basically nonexistent in the colonies in the years leading up to, during and following the American Revolution. Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations was published March 9, 1776, less than four months before the Declaration of Independence was adopted. It had no influence at all on the thinking and actions of the Continental Congress and only limited effect in the decade that followed and encompassed formulation and ratification of what became our Constitution.

In fact, as Gordon Wood, in describing the mindset of the revolutionaries as they confronted challenges in the decade after independence while working toward reconstituting the American form of government, states:

Like Puritanism, of which it was a more relaxed, secularized version, republicanism was essentially anti-capitalistic, a final attempt to come to terms with the emergent individualistic society that threatened to destroy once and for all the communion and benevolence that civilized men had always considered to be the ideal of human behavior. [2]

Contrary to the sanitized and sentimental fictions of the revolutionary and founding periods in America that are the nonsense of school curricula as well as civic and popular political orthodoxy, those years where rich in conflict, confusion and danger, especially by 1787 when the Philadelphia Convention convened. [3]

Those delegates – the “demigods” of Jefferson’s tongue-in-cheek characterization [4] – came together because, for most, they realized they were facing the likely dissolution of the free, self-governing nation they and their forebears had sacrificed so much to achieve. The Confederation system was breaking down after being found utterly incapable of achieving even one of the necessary goals of a government like the protection of the nation and its people from outside threats and interference, maintenance of the national credit so business within and without could continue and thrive or keeping the peace between the states.

As they sought to create a structure that would secure those ends and more, they acknowledged the erosion and gradual displacement of an element that was, in their minds, essential to the foundation of a successful republic: Virtue.

What that meant to them, and ought also to mean to us, is an unselfish, disinterested commitment to seek, secure and sustain the good of the nation and the people or, as one clear-eyed commentator puts it:

…the Framers unequivocally conceived of American government as republican-democratic. Citizens and elected officials were supposed to be virtuous. In the political realm, they were to pursue the common good or public welfare rather than their own ‘private and partial interests…When citizens or officials used government institutions to pursue their own interests, then the government was corrupt. Groups of like-minded citizens who corrupted the government were deemed factions, whether they constituted a majority or a minority of citizens…how could a democratic majority constitute a faction? [B]ecause the Framers understood the common good to be objective or…‘out there’...Thus, one could not merely add together the private interests of the majority of citizens to calculate the common good…[As James] Madison explained…when a government establishes ‘the interest of the majority [as] the political standard of right and wrong…it is only re-establishing…force as the measure of right.’ By definition, then, a government pursuing ‘partial interests’ or ‘private interests’ rather than the common good was corrupt. [5]

In the posts that will, from time-to-time, follow this one, we plan to explore the convergence on that idea of “virtue” as a trust of the highest order and of the most fundamental importance in the functioning and maintenance of not only our commitment to our clients but of those who seek or accept the role of representative of the people. They really do come down to the same thing.

[1] Two standouts are Michael Klarman’s The Framers’ Coup (New York: Oxford University Press 2016) and Alison LaCroix’s The Ideological Origins of American Federalism (Cambridge, MA: Harvard University Press 2010).

[2] Wood, Gordon. The Creation of the American Republic 1776 – 1787. Chapel Hill, NC: University of North Carolina Press. 1998. pp. 418-419.

[3] Although the condition of American polity and society described here is virtually beyond dispute or disagreement, for a concise summary see Stephen Feldman, “Is the Constitution Laissez-Faire?” in Brooklyn Law Review, Vol. 81:1 2015, pp. 5-9.

[4] “I have news from America as late as July 19. Nothing had then transpired from the Federal convention. I am sorry they began their deliberations by so abominable a precedent as that of tying up the tongues of their members. Nothing can justify this example but the innocence of their intentions, & ignorance of the value of public discussions. I have no doubt that all their other measures will be good & wise. It is really an assembly of demigods.” (Capitalization modified to current usage).

To John Adams from Thomas Jefferson, 30 August 1787,” Founders Online, National Archives, last modified June 13, 2018,

[This is an Early Access document from The Adams Papers. It is not an authoritative final version.]

[5] Feldman, pp. 9-10.

Ed Lynch is founder and CEO of FPG. He has worked with ERISA-qualified plan sponsors and designated fiduciaries in most aspects of plan development and maintenance since the early 1980s. Ed founded FPG with the mission to be a leader in the field of employee benefits and the most trusted source of information and evaluation in the retirement plan industry.

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