James Madison Analyzed Regime Uncertainty in 1788

In Federalist 62, published in the Independent Journal, February 27, 1788, James Madison writes as follows:

It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?

Another effect of public instability is the unreasonable advantage it gives to the sagacious, the enterprising, and the moneyed few over the industrious and uniformed mass of the people. Every new regulation concerning commerce or revenue, or in any way affecting the value of the different species of property, presents a new harvest to those who watch the change, and can trace its consequences; a harvest, reared not by themselves, but by the toils and cares of the great body of their fellow-citizens. This is a state of things in which it may be said with some truth that laws are made for the few, not for the many.

In another point of view, great injury results from an unstable government. The want of confidence in the public councils damps every useful undertaking, the success and profit of which may depend on a continuance of existing arrangements. What prudent merchant will hazard his fortunes in any new branch of commerce when he knows not but that his plans may be rendered unlawful before they can be executed? What farmer or manufacturer will lay himself out for the encouragement given to any particular cultivation or establishment, when he can have no assurance that his preparatory labors and advances will not render him a victim to an inconstant government? In a word, no great improvement or laudable enterprise can go forward which requires the auspices of a steady system of national policy.

In my own work on regime uncertainty, which first saw the light of day almost sixteen years ago in an article in The Independent Review, I focused on the idea Madison expresses in the third paragraph of the foregoing quotation: regime uncertainty tends to paralyze long-term investment. In my article I did not make reference to Madison’s discussion, being focused as I was on the 1930s and 1940s and on other, more recent analysts who had taken seriously the same basic idea. In retrospect, I think I should have, at least, tipped my hat to Madison.

Regime uncertainty seems increasingly to be an idea whose time has finally come. Austrian economists welcomed it soon after I began to discuss it, and recently even mainstream economists have begun to appreciate its importance. In Valhalla, Madison may be smiling approvingly and asking gently as he looks down on us, “What took you so long? Did I not make myself quite clear?”