Actually, the California Gold Rush started, not in 1849, but in January 1848 when gold was found in Coloma, California. Though it is difficult to be precise, it is thought that gold worth many billions of dollars in current values was extracted, a great deal of money and a great contribution to the USA economy. For example, San Francisco grew from a few hundred residents before the discovery of gold to almost 40000 residents in a very short time. This was growth through exploitation of US natural resources (and miners) and not through exploitation of US ingenuity (though, no doubt, many miners were ingenious), which had a multiplier affect throughout the US economy, thus increasing federal government income.
Contemporaneous with the rush for gold, there came the 1850 Compromise, which included inter alia: approval for (newly affluent) California's application to join the USA as a free state; Texas’s surrender of claims to various territories, and – very importantly – to transfer its devastating public debt to the (newly better funded) federal government. There was a need to compromise because of an earlier compromise (the Missouri Compromise) and the constitutional defect that involved exploitation of human resources (slavery).
The exploitation of resources (both natural and human) had been, and would continue to be, a major source of the growth of the USA (and the colonies prior to the USA). Segregation, for example, was another exploitation of human resources. Once there was growth through exploitation, there was room for growth through ingenuity and for ingenuity to be recompensed.
The robber barons that Teddy Roosevelt tried to rein-in had wealth that was due less to ingenuity than to resources such as iron ore, coal, petroleum, forests, fertile land, etc. Once you had these basic industries, this allowed others to create secondary industries such as railroads, finance, power supplies, or automobiles. Access to these resources came because the US military had removed indigenous peoples from their lands, so that the colonizers could then begin their exploitation: go west young man, the government will help protect you from the original inhabitants.
People often forget the historical importance of resource exploitation, and somehow believe the successes of the 1800s and 1900s were due to ingenuity alone, forgetting that the dream of success and improving one’s lot is easier to support if the country is getting something for nothing (“free enterprise”). It was not how little people were taxed, but how much there was to get for almost nothing, that determined the nation’s success. John Maynard Keynes’s insight was that – as resources became depleted – something was needed to replace the engine of resource-exploitation. Gold as a resource had little intrinsic utility, because there was only so much jewellery people could wear – gold’s utility was extrinsic, coming from its use as a medium of financial exchange. Money is also a medium of financial exchange, and Keynes said that gold mining was analogous to hiding pots of money and then encouraging people to find them, and dig up the pots. Keynes noted that the industry created by disinterring pots of money would have multiplier effects throughout the economy but wouldn’t it be better if – instead of burying pots of money – we improved a nation’s infrastructure?
It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
— John Maynard Keynes, “Book III: Chapter 10. The Marginal Propensity to Consume and the Multiplier”, The General Theory of Employment, Interest and Money, 1936
— John Maynard Keynes, “Book III: Chapter 10. The Marginal Propensity to Consume and the Multiplier”, The General Theory of Employment, Interest and Money, 1936
The House-Republican budget for 2013, signed by Paul Ryan as committee chair, is full of political difficulties where it comes to public investment, and it strongly stresses tax reduction, along the lines:
No economic system in the history of mankind has done more to lift up the poor than America’s commitment to free enterprise.
— House Budget Committee, Fiscal Year 2014 Budget Resolution, March 2013
The Chavez-led socialist government in Venezuela has done a great deal towards lifting up the poor, not through free enterprise but through exploitation of the country’s large petroleum resources and a socialist redistribution of income. Resources again trump ideology, though – as with Chavez – the resources can make the ideology seem to be correct.
Arthur Laffer thinks chair Ryan is the best Republican candidate for president in 2016, partly because of Ryan’s attitudes towards taxes (and free enterprise), but anti-tax arguments are often adventitious. Laffer and others wrote a humdrum anti-tax book in 2008 saying this about the two Dakota states:
Or consider the contrasting economic fortunes of the Dakotas. These two states are a wonderful laboratory experiment, because in every way the states are identical twins: … All that divides these states is an arbitrary line through the dusty plains and the cavernous wheat fields. Yet, North Dakota ranked second worst in outmigration in 2007, while South Dakota ranked in the top ten as a destination place. We can think of only one possible explanation for why one of these states has been gaining people and the other has been losing them: North Dakota has an income tax and South Dakota doesn’t. And Americans like to live in places without an income tax.
— Arthur B Laffer, Stephen Moore, and Peter Tanous, The End of Prosperity: How Higher Taxes Will Doom the Economy – If We Let It Happen, 2008
Both these states had low unemployment in January 2008 (2.9% ND, 2.7% SD), and five years later North Dakota is the boom state because of the exploitation of natural resources; South Dakota is doing fine but is nowhere as successful – unemployment in January 2013 was 3.3% ND, 4.4% SD. North Dakota had a 4.0% population increase from 1 April 2010 to 1 July 2012, and South Dakota had a 2.4% increase.
And what is “free enterprise”?
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