Warning: this isn’t going to be one of those “feel good” pieces about America and the Fourth of July. I’m taking a detour from the last few letters, which have been tightly focused on money. The reason for the detour is this: Americans face hard choices in the coming months and years. Those choices will determine how we emerge from our current crisis. In this letter, I will be sharing my thoughts as an individual, although those same thoughts about the choices before us will certainly play a role in my work as an investment advisor.

As both an individual and an investment advisor, I always try to distinguish between what we can and what we cannot control in our lives. We may or may not be able to prevent the government from continuing its current course of fiscal madness (huge deficits/massive national debt) or monetary mayhem (continuing to debase the dollar until it possibly collapses in the future). What each of us we can do is raise his voice and vote with his conscience.

I don’t believe the “end of America” is inevitable and I don’t think our country must necessarily slide into “second world” or even “third world” status as some have claimed. However, as an individual and as a professional, I take these threats seriously. To ignore them or downplay them would be imprudent and unfair to my family and to my clients. On the other hand, I strongly believe that “We the People” really do have the power to see that this doesn’t happen. What better time to address this than the anniversary of the birthday of our country?

So here goes.

This Independence Day marks the 235th anniversary of the founding of the United States. And this year, like we do every year, many of us will take off from work and mark the day with fireworks, barbecues and a patriotic song or two.

But that’s not what makes July 4th so special.

July 4, 1776, the day the United States of America banded together and declared their independence from Great Britain, marked the beginning of the greatest experiment in liberty in the history of the world. That’s what made July 4th so special then.

But what makes July 4th so important today? It’s so important because whether these United States emerge from our current crisis stronger or weaker will depend on just how intact that greatest experiment in liberty remains, when all is said and done.

Of course, we will ultimately emerge from this crisis. And we will emerge with our “beautiful for spacious skies,” our “amber waves of grain,” and “purple mountain majesties above the fruited plane.” We will emerge with our rich reservoir of natural resources, our system of rivers, railroads and highways to facilitate the transport of goods from coast to coast, unequalled in all the world. (Yes, we need some upgrading, but I suspect that given the natural and man-made infrastructure we have, most countries in the world would love to have that problem.)

On top of all that, we will emerge with what economists call our “human capital”: that unique collection of people, home-grown and “imported,” who have formed and continue to form the backbone of our country, even with all our fussin’ and fightin’.

Sure, things have changed in recent decades. The “American Dream” has somewhat faded for many, as we struggle with unemployment, home foreclosures, and a growing divide between the rich and everyone else. (How un-American is that?!!)

But that’s precisely why liberty will prove to be so critical to our future. Why critical? Because it was the great American experiment in liberty that originally laid the groundwork for the rise of America from a struggling “emerging market” country in the 18th century to the envy of much of the world. Without liberty and the legal system that guaranteed it, we’d just be another resource-rich big country like Canada or Brazil. Nothing wrong with those places of course, but we wouldn’t have become what the world recognizes as “America.”

Looking at it another way, what other choice do we have? If we don’t chose liberty, what’s left? What’s left will be tyranny or chaos.* Let’s take a closer look at those other choices, starting with the relationship between liberty and tyranny.

The Founding Fathers didn’t assume they had defeated tyranny in favor of liberty when they signed the Declaration of Independence. They understood that tyranny would in all likelihood re-assert itself some day. That’s what the Constitution of the United States was all about. The Constitution, and the form of government it presented, was meant to assure that those “unalienable Rights” of life, liberty and the pursuit of happiness would be secure after the British were sent packing in 1783.

(It might be worth your while to read the Declaration of Independence if you haven’t done so lately. It only takes a few minutes. You may find it a refreshing and renewing experience to read it, as I do, during the July 4th holiday. Click here for an online version.)

The fact is, our Founding Fathers, once they won their freedom, spent a lot of time researching the best kind of government to allow the citizens of the new United States the greatest degree of liberty. The Founders were highly educated, many of them brilliant men. They knew all about the kinds of government that existed throughout history, from the democracy of Ancient Greece, through the Republican government of Rome before Julius Caesar, the powerful central government of Imperial Rome, the petty fiefdoms of the Dark Ages, on to the nation-states that developed with the Renaissance and the Enlightenment in Europe — not to mention the Islamic government of the Turks and the various “oriental” despotic governments of Asia. They grew up under British Common Law — that system of laws based upon an understanding of the “natural law” shared by all the world’s great religions. They studied them all before deciding on the government outlined in the Constitution of the United States.

And they believed that they came up with the best possible — albeit imperfect — form of government that would and did in fact promote liberty.

On the one hand, they rejected pure democracy because they knew that majority rule would easily turn into the tyranny of mob rule. On the other hand, they rejected monarchy because they had already experienced the tyranny of King George III, even though he ruled under the constraints of the British Parliament.

It’s important that we remember that the Founding Fathers hadliberty as their goal when they stepped forward and signed the Declaration of Independence — knowing they were putting not only their personal possessions, but their very lives at risk in facing off against the British army and navy. It’s also important, I’d say critical to our future, that we recognize the genius behind the creation of what so many others around the world have labeled the greatest political document in history: the Constitution of the United States. Most recently, our Constitution served as a model for the Iraqi Constitution. Heck, even the tyrants that created and ruled the now-defunct Soviet Union set up a constitution based on the U.S. Constitution.

Of course, being tyrants, the Soviets simply ignored their own constitution. And it’s key that we understand just why. They ignored their own constitution because Lenin, Stalin and all their cronies were tyrants. What they wanted was the only thing that mattered. Their constitution wasn’t worth the paper it was written on. The Soviet “law of the land” was whatever the leaders said it would be. That’s what happens when tyrants run the government. What drives tyrants is power — their own power — pure and simple. Anything goes.

What drove the Founding Fathers, on the other hand, was the desire for liberty and the system of law that provided the foundation for that liberty. Indeed, they lived their lives under the protection of the great edifice of British Common Law, laboriously built over centuries, brick by brick, by people who understood that just law was based upon, as the Declaration of Independence specifies, “the Laws of Nature and Nature’s God.” They recognized the law as being apart from the whims of the individual and above the tyrant’s lust for power. Such an understanding was — and remains — unique in the history of the world’s many and diverse legal systems.

Naturally, we were never perfect in our liberty. Indeed, even our Founding Fathers understood that the government they created would turn out to be some mix of liberty and tyranny. They knew human beings all too well to think they could overcome human nature or somehow perfect it.

And understanding human nature, they knew that the struggle for liberty and against tyranny would, indeed must, continue after they were gone. And they were right.

Now let’s talk about the relationship between liberty and chaos. We’ll start with the Declaration’s reference to “the Laws of Nature and Nature’s God.” This wasn’t just fancy language or something the Founders “threw in” because of the times in which they lived. The language wasn’t inserted because at that time in history more people believed in God, or espoused some form of religion. That language is critical to the document and to the sort of law and liberty the Founders espoused. It is specifically that language that preserved the integrity of our system of law from the whims of the individual and the tyrant’s lust for power. And it is that system of law that supported and promoted the system of liberty that resulted in the “America” that historically has been so admired around the world.

The Founding Fathers — the “theorists” behind the Declaration of Independence, the American Revolution and the Constitution — recognized the existence of a Creator, and they recognized human imperfection. Compare this to the French Revolution, which took place only a few years later. The theorists of the French Revolution believed in human perfectibility, that human beings and society could somehow be completely fabricated anew. Many of them rejected a Creator, best symbolized by the “Goddess of Reason,” a statue they erected in the hallowed space of the Cathedral of Notre Dame. Their revolution, which began in 1789, ended in years of chaos and terror. And, if you remember, the only escape the French people could find from the chaos and terror spawned by their Revolution was in the person of one of history’s most powerful tyrants, Napoleon Bonaparte.

Compare this to the end of the American Revolution. We certainly faced challenges, including social unrest (“Shay’s Rebellion” would be a good example). But those challenges were addressed by the Constitutional Convention in 1787.

And what is even more remarkable about the work of the gentlemen who attended that convention was that they not only fashioned a government that created a secure foundation for liberty, as opposed to tyranny and chaos, but that they also understood that even their best ideas would be subject to the test of time. That’s why the Constitution contains provisions for amendment. Indeed, as you probably know, 10 amendments — which came to be known as the Bill of Rights – were immediately added to the original document. They were added to further ensure liberty.

Of course, over time, many other changes occurred, most dramatically during the 20th century. Two murderous World Wars, divided by an economically devastating Great Depression, radically and completely reshaped not only our country, but the entire world. As the last man standing in 1945 — at least the last free man — the United States emerged from World War II a far different place than those 13 colonies who banded together to fight the British on July 4, 1776.

For now, let’s set aside the debate about whether the changes that occurred in the United States were for better or for worse. Let’s focus instead on the 21st century and our current challenges.

While the 21st century hasn’t brought the horrors of total war (and let’s hope it stays that way), we now face our most serious economic, social and political challenges since the 1930’s. And that’s the reason for this letter. In a real sense, the choices that confront us are many of the same choices our Founding Fathers faced 235 years ago. You may think I’m being overly dramatic, but I’m not.

The good news is that our system continues to function even as the crisis grinds on. As events unfold, we will see laws and regulations being proposed and passed by Congress who will send them on to the President for either his signature or veto. Some of those laws will be reviewed by the Supreme Court. That’s all as it should be.

We can be spectators to the events passing before our eyes. We can hope that somehow our elected leaders and the bureaucrats they appoint and hire (millions of them, by the way) somehow make good choices as to how we get out of this crisis. The problem with that passive approach is that some of those choices may take us down the road to tyranny or — God forbid — chaos.

On the other hand, we can pay attention, become engaged, get involved and see to it that the laws and regulations now under consideration further the cause of liberty which has served us so well and caused our country to be the envy of much of the world for over two centuries.

Of course, this is serious business. And sometimes, in a world where many of us work hard day to day, some of us barely able to keep our families intact and secure, there’s a natural temptation to leave the hard choices facing our country to others. I certainly feel this way from time to time. At those times, perhaps we can all remember our Founding Fathers, and the fear and trembling they must have felt as they put quill pen to paper and signed the Declaration of Independence 235 years ago, knowing the consequences of their choices, with no assurance of ultimate victory in the war to come. The only comfort they had then was captured by those famous final words of that great document (my highlights):

We, therefore, the representatives of the United States of America, in General Congress, assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the name, and by the authority of the good people of these colonies, solemnly publish and declare, that these united colonies are, and of right ought to be free and independent states; that they are absolved from all allegiance to the British Crown, and that all political connection between them and the state of Great Britain, is and ought to be totally dissolved; and that as free and independent states, they have full power to levy war, conclude peace, contract alliances, establish commerce, and to do all other acts and things which independent states may of right do. And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.

Happy Fourth of July!

* Specific acknowledgment is given here to the work of Richard Maybury for helping me to understand this as well as the critical connection between the system of law a country follows and the country’s economy. I reference here to his “Uncle Eric” series of books, especially to Whatever Happened to Justice?

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com