Alexan­der Hamil­ton’s ideas are out of fashion—and that’s a pity

Alexan­der Hamil­ton’s pro-busi­ness and big gov­ern­ment ideas wouldn’t make him pop­u­lar to­day

Bloomberg Businessweek (Asia) - - CONTENTS - By Peter Coy

The bi­par­ti­san Dis­ney­fi­ca­tion of Amer­ica’s first Trea­sury sec­re­tary be­gan in earnest last fall when Pres­i­dent Barack Obama spoke at a fundrais­ing per­for­mance of the hit mu­si­cal Hamil­ton and said it “hap­pens to be the only thing Dick Cheney and I agree on.” The real Alexan­der Hamil­ton made no ef­fort to be loved by all, as Lin-Manuel Mi­randa’s bril­liant, rap-in­fused mu­si­cal makes clear. He was vain and opin­ion­ated. He was also usu­ally right. No lib­er­tar­ian, he be­lieved the fed­eral gov­ern­ment could and should play a cen­tral role in eco­nomic devel­op­ment. His ar­gu­ments de­serve fresh con­sid­er­a­tion for to­day’s prob­lems—even if tak­ing them se­ri­ously will make it harder for ev­ery­one to agree on his won­der­ful­ness.

For starters, Hamil­ton re­jected Scot­tish economist Adam Smith’s then­novel doc­trine of lais­sez-faire. He feared that pure free trade would trap the U.S. into re­main­ing an eco­nomic colony sup­ply­ing cot­ton, to­bacco, food, and raw ma­te­ri­als to Bri­tain. He wanted the fed­eral gov­ern­ment to have the power to tax and spend, giv­ing it real agency.

The found­ing fa­ther may have been the big­gest in­flu­ence on how cap­i­tal­ism has evolved

“Power with­out rev­enue is a bub­ble,” he wrote.

Hamil­ton ad­vo­cated build­ing a strong in­dus­trial base “to ren­der the United States in­de­pen­dent [of] for­eign na­tions for mil­i­tary and other es­sen­tial sup­plies.” His ground­break­ing Re­port on the

Sub­ject of Man­u­fac­tures in 1791 in­vented the idea of mod­er­ate tar­iffs to pro­tect in­fant in­dus­tries. It also called for in­vest­ment in roads and canals; strong bank­ing and patent sys­tems; and boards for pro­mot­ing arts, agri­cul­ture, man­u­fac­tur­ing, and com­merce. “In other words,” writes Ha-Joon Chang, a devel­op­ment economist at the Univer­sity of Cam­bridge, in an e-mail, “all the key el­e­ments of the eco­nomic sys­tem that have made the U.S. one of the most suc­cess­ful economies in hu­man his­tory.”

His­tory shows that Hamil­ton bested his ri­val Thomas Jef­fer­son, who wanted the na­tion to be a loose con­fed­er­a­tion of yeo­man farm­ers. “The 20th cen­tury be­came an Amer­i­can cen­tury pre­cisely be­cause Amer­ica by 1880 was not a gi­gan­tic Aus­tralia,” Stephen Cohen and Brad­ford DeLong wrote in a new book, Con­crete Eco­nom­ics: The Hamil­ton Ap­proach to Eco­nomic Growth and Pol­icy.

The U.S. to­day has a big fed­eral gov­ern­ment, a strong cen­tral bank, and the world’s most pow­er­ful mil­i­tary. Since World War II, the fed­eral gov­ern­ment has helped fi­nance the com­puter, the semi­con­duc­tor, the In­ter­net, air­craft, and biotech­nol­ogy.

In re­cent years, though, the eco­nomic tide has turned. Man­u­fac­tur­ing, which Hamil­ton con­sid­ered vi­tal to se­cu­rity and pros­per­ity, has shrunk to 12 per­cent of the econ­omy from 21 per­cent in 1980, ac­cord­ing to United Na­tions data. (To be sure, the same has hap­pened in other in­dus­tri­al­ized na­tions.) At the same time, the fed­eral gov­ern­ment is be­com­ing less am­bi­tious. More tax dol­lars that were spent on do­ing stuff are be­ing di­verted to sup­port­ing peo­ple, mostly through So­cial Se­cu­rity and Medi­care. The White House’s Of­fice of Man­age­ment and Bud­get projects that out­lays ex­clud­ing trans­fer pay­ments, grants, and in­ter­est— in other words, spend­ing on ev­ery­thing from the Pen­tagon to the Na­tional In­sti­tutes of Health to the U.S. Patent and Trade­mark Of­fice—will fall to 3.8 per­cent of gross do­mes­tic prod­uct by 2021. That would be the low­est level since the gov­ern­ment be­gan track­ing this in 1940.

Po­lit­i­cally, too, Hamil­ton’s ideas have been in re­treat. Demo­cratic Pres­i­dent Jimmy Carter dereg­u­lated air­lines, truck­ing, and rail­roads. Repub­li­can Pres­i­dent Ron­ald Rea­gan de­clared in his first in­au­gu­ral ad­dress, “Gov­ern­ment is not the so­lu­tion to our prob­lem; gov­ern­ment is the prob­lem.” Demo­cratic Pres­i­dent Bill Clin­ton presided over fi­nan­cial dereg­u­la­tion af­ter promis­ing in his 1996 State of the Union ad­dress that “the era of big gov­ern­ment is over.” And so on up through to­day’s Repub­li­can ma­jori­ties in the House and Se­nate, which re­sist step­ping up spend­ing on what Hamil­ton would have called “in­ter­nal im­prove­ments,” de­spite his­tor­i­cally low bor­row­ing costs. The re­sult is crum­bling in­fras­truc­ture and dwin­dling eco­nomic com­pet­i­tive­ness. As for­mer Trea­sury Sec­re­tary Larry Sum­mers likes to ask: “Is any­one proud of Kennedy air­port?”

Hamil­ton, in short, is get­ting more re­spect on Broad­way than in­side the Belt­way—and less re­spect at home than he’s got­ten abroad. The economist Friedrich List in­tro­duced Hamil­to­nian ideas to Ger­many in the 1840s, be­fore Ger­man uni­fi­ca­tion, as jour­nal­ist James Fal­lows de­scribed in a 1993 ar­ti­cle in the

At­lantic. Ja­pan im­ported List’s brand of na­tion-build­ing from Ger­many dur­ing the Meiji Restora­tion of 1868 to 1912. Ja­pan in turn spread its think­ing to Korea and Tai­wan, which it oc­cu­pied un­til the end of World War II. “You can even say that he [Hamil­ton] is the man who had the big­gest in­flu­ence on the way in which cap­i­tal­ism has de­vel­oped,” ar­gues Cam­bridge’s Chang, a na­tive of South Korea.

Ad­vo­cates for mea­sures to bol­ster U.S. man­u­fac­tur­ing say Hamil­ton, were he alive to­day, would be on their side. “He cer­tainly rec­og­nized that the full devel­op­ment of a na­tional econ­omy re­quired a very strong gov­ern­ment hand,” says Alan Tonel­son, a trade ex­pert whose blog is called Real­i­tyChek. “He was an eco­nomic na­tion­al­ist,” says Scott Paul, pres­i­dent of the Al­liance for Amer­i­can Man­u­fac­tur­ing. In Hamil­ton’s world­view, says Paul, “there’s a role for gov­ern­ment to de­velop smart public poli­cies to spur eco­nomic growth.”

There is no real suc­ces­sor to Hamil­ton on the po­lit­i­cal scene to­day, says Michael Lind, author of the 2012 book Land of Prom­ise: An Eco­nomic His­tory of the United States. “What you have is a kind of Jef­fer­so­nian pop­ulist op­po­si­tion to trade,” says Lind, who is co-founder of New Amer­ica, a public pol­icy in­sti­tute. The right, he says, is na­tivist, and the left is an­tibusi­ness. “I re­ally don’t see any­body hav­ing this strate­gic, Hamil­to­nian view.” (Cer­tainly not Don­ald Trump and Bernie San­ders, any­way.)

Hamil­ton, hav­ing fought along­side Wash­ing­ton in the Rev­o­lu­tion­ary War, was acutely sen­si­tive to the mil­i­tary im­por­tance of hav­ing one’s own arms man­u­fac­tur­ing ca­pac­ity. Says Lind: “He wouldn’t do what the U.S. has done, which is to si­mul­ta­ne­ously ex­tend de­fense com­mit­ments, cut the de­fense bud­get, and off­shore much of our de­fense in­dus­trial base to our most likely mil­i­tary ri­vals.” The U.S. gets rare earths for night-vi­sion gear from China and rock­ets for satel­lite launches from Rus­sia. “It just seems crazy,” he says.

The eco­nomic na­tion­al­ism of Hamil­ton, Henry Clay, Abra­ham Lin­coln, Teddy Roo­sevelt, Franklin Roo­sevelt, and Dwight Eisen­hower was a prag­matic search for poli­cies that worked, re­gard­less of ide­ol­ogy, says author DeLong, an economist at the Univer­sity of Cal­i­for­nia at Berke­ley. “Some­time around 1980 we very much lost that sense of prag­ma­tism.” The fi­nan­cial sec­tor “hy­per­tro­phied,” DeLong says, in­equal­ity grew, and an­titrust laws fell into dis­use.

Hamil­ton had some deeply un­demo­cratic ideas. At the Con­sti­tu­tional Con­ven­tion he rec­om­mended that the pres­i­dent serve for life on con­di­tion of good be­hav­ior, ap­point all the gover­nors, and have veto power over state leg­is­la­tion. He wanted some­thing like an Amer­i­can king. He was also en­er­gized by the thought of copy­ing the Brits in us­ing chil­dren in the mills, “many of them of a very ten­der age,” as he put it. What’s more, when he died in 1804, the U.S. was an eco­nomic back­wa­ter. Tar­iffs for in­fant in­dus­tries made more sense then than now. The young na­tion could go far sim­ply by mim­ick­ing (or steal­ing) Bri­tish ma­chine de­signs. “Hamil­to­ni­an­ism is for a par­tic­u­lar his­tor­i­cal stage with par­tic­u­lar pre­con­di­tions,” DeLong says.

For all that, Hamil­ton’s eco­nomic na­tion­al­ism has en­dur­ing ap­peal— tai­lored, of course, to a new age, as Hamil­ton him­self would have ad­vo­cated: “I hold with Mon­tesquieu that a gov­ern­ment must be fit­ted to a na­tion as much as a Coat to the In­di­vid­ual,” he once wrote. The slap­dash, overex­tended sys­tem the U.S. has now is serv­ing Amer­i­cans poorly. A Hamil­ton for the 21st cen­tury could be just what the coun­try needs. <BW>

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