Hamilton’s American System vs. Coronavirus
by Nancy Spannaus
March 2, 2020—As Alexander Hamilton knew well, parsimony—i.e., purchasing everything at the cheapest price, and only when absolutely necessary—is an unwise policy. That practice doesn’t create wealth, and it certainly doesn’t provide for the health and prosperity of a nation. Shouldn’t our unpreparedness to even test adequately for the novel coronavirus COVID-19 make that obvious?
Our only competent defense against pandemic disease is the adoption of the principles behind Hamilton’s American System of economics.
In his Report on Manufactures, Hamilton put it succinctly:
Not only the wealth; but the independence and security of a Country, appear to be materially connected with the prosperity of manufactures. Every nation, with a view to those great objects, ought to endeavour to possess within itself all the essentials of national supply. These comprise the means of Subsistence, habitation, clothing, and defence. (emph in original)
Yet, increasingly over the decades since the death of President Franklin Roosevelt, our nation has abandoned these sound economic principles. As a result, we find ourselves unnecessarily vulnerable to a crisis like that of the present. Crucial elements of our pharmaceutical industry and medical supplies are outsourced to foreign countries, especially China, so that we could “save money,” and the capacity to manufacture what we need no longer exists at home. Our hospital infrastructure has been cut back dramatically in the name of “modernization” and “cost-effectiveness.” Federal funding for research and development to master new diseases has been woefully underfunded, not to mention the necessary investment in educating sufficient medical personnel.
How bad a crisis do we need before we return to Hamilton’s principles today?
The Principles Elaborated
When Congress mandated Hamilton’s to produce his Report on Manufactures, it specifically referenced the need “to render the United States independent of other nations for essential, particularly for military supplies.” But in laying out his perspective for turning our nation into an industrial republic, Hamilton expanded his scope far beyond the realm of military preparedness.
In his listing of domestic industries that should be protected and promoted, he of course gave special attention to manufactures essential for defense (iron, gun powder, etc.) but also included the clothing industry (cotton, wool, etc.) and the printing industry. There was no necessity at that time to be concerned with foodstuffs, given the fact that the overwhelming majority of the American population was involved in farming. Today we would have to add food, as well as pharmaceuticals, medical equipment, and many other elements of the supply chain for modern medical science.
Hamilton also argued for government support for inventors and authors, and for the improvement of national infrastructure, specifically that of transportation. His reasoning, however, could equally be applied to national health infrastructure, as an appropriate application to providing for the general welfare of the population. Indeed, in 1792, Hamilton issued a call for Federal support for anywhere from one to three Marine hospitals, to care for needy seamen and their families. His proposal, implemented in 1798, is considered the origin of the U.S. Public Health Service (which has been savaged today).
The following section from the Report on Manufactures speaks to the scope of Hamilton’s concept of the appropriate areas for applying Federal monies:
A Question has been made concerning the Constitutional right of the Government of the United States to apply this species of encouragement, but there is certainly no good foundation for such a question. The National Legislature has express authority “To lay and Collect taxes, duties, imposts and excises, to pay the debts and provide for the Common defence and general welfare” with no other qualifications than that “all duties, imposts and excises, shall be uniform throughout the United states, that no capitation or other direct tax shall be laid unless in proportion to numbers ascertained by a census or enumeration taken on the principles prescribed in the Constitution, and that “no tax or duty shall be laid on articles exported from any state.”
These three qualifications excepted, the power to raise money is plenary, and indefinite; and the objects to which it may be appropriated are no less comprehensive, than the payment of the public debts and the providing for the common defence and “general Welfare.” The terms “general Welfare” were doubtless intended to signify more than was expressed or imported in those which Preceded; otherwise numerous exigencies incident to the affairs of a Nation would have been left without a provision. The phrase is as comprehensive as any that could have been used; because it was not fit that the constitutional authority of the Union, to appropriate its revenues should have been restricted within narrower limits than the “General Welfare” and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition.
It is therefore of necessity left to the discretion of the National Legislature, to pronounce upon the objects, which concern the general Welfare, and for which under that description, an appropriation of money is requisite and proper. And there seems to be no room for a doubt that whatever concerns the general Interests of Learning, of Agriculture, of Manufactures, and of Commerce are within the sphere of the national Councils as far as regards an application of Money. (emph. in original)
Today, we have violated these principles on virtually all fronts. In the name of getting all our commodities and industrial inputs at the cheapest possible price, we have left ourselves dependent upon imports to a shocking degree, even in the area of food supplies. (We import a huge proportion of our sheep, beef, fruit, and vegetable consumption.) We don’t have adequate facilities to produce our own medicines, build our own modern transportation systems, or outfit our hospitals. We have also relied on importing skilled medical personnel from abroad ( A 2018 study says one in six is an immigrant), which, while saving us money in educating our own, has left us obscenely short on trained doctors, for example.
What is “Necessary?”
The biggest domestic opponents to Hamilton’s thinking about Federal investment in manufactures and infrastructure were what we would call today the “fiscal conservatives.” While framed in a “strict constructionist” view of the Constitution, their argument was aimed at restricting the powers of the Federal government and preventing spending on what they considered “unnecessary” for the functioning of nation.
Thomas Jefferson elaborated this line of argument in his advice to President Washington on the Constitutionality of the National Bank. Jefferson, then Secretary of State (and Attorney General Edmund Randolph), argued that the Bank was not strictly necessary, because it was possible for the Federal government to function without it (in this case, by using state banks). In other words, nothing is necessary if we can survive without it.
One can easily see how this thinking has helped lead us to the current health crisis. Budgets have been cut – for the NSC’s Pandemic Preparedness Response Directorate, for the CDC, for support of non-self-sustaining hospitals, for general medical research – because there didn’t appear to be an immediate disaster, and we could live without it. The expenditures weren’t “necessary” – until it became clear that they were! For when an epidemic or pandemic hits, it is next to impossible to make up for the lack of investment in the health infrastructure over the previous years and decades!
Hamilton answered Jefferson at length, and convinced President Washington to sign the bank bill. The following statement of principle provides his most compelling rejoinder:
This restrictive interpretation of the word necessary is also contrary to this sound maxim of construction namely, that the powers contained in a constitution of government, especially those which concern the general administration of the affairs of a country, its finances, trade, defence &c ought to be construed liberally, in advancement of the public good. This rule does not depend on the particular form of a government or on the particular demarkation of the boundaries of its powers, but on the nature and objects of government itself. The means by which national exigencies are to be provided for, national inconveniencies obviated, national prosperity promoted, are of such infinite variety, extent and complexity, that there must, of necessity, be great latitude of discretion in the selection & application of those means. Hence consequently, the necessity & propriety of exercising the authorities intrusted to a government on principles of liberal construction. (emph. added)
Ensuring the Essentials
Hamilton was right. Our country, and every country, should “possess within itself all the essentials of national supply.” Does that mean redundancy globally? You bet. Does it mean increased cost? Perhaps in the short term, but it’s a cost more than compensated for by the reliability of supply and the prospects for improvement technologically and in the broad standard of living.
How do we apply this to the health care crisis right now?
By invoking the Defense Production Act in order to gear up domestic production of masks and other protective gear for medical personnel dealing with the coronavirus, the Trump Administration has made a nod to necessity. But the vulnerability we are dealing with here has been decades in the making, and it’s going to take a “sea change” in approach to put us on the right track.
For example, 20% of the rural hospitals in the United States are near financial collapse; more than 100 have been shut down since 2010 alone. Popular wisdom has attributed this reduction to the failure of 17 states to expand Medicaid, as provided for in Obamacare, and that is clearly a factor. But Obamacare itself has put financial pressure in hospitals in areas with poor and distressed populations, by penalizing them for readmissions and the like. The press for “efficiency” has been accompanied by cuts in reimbursements, which threaten financial viability. The “solution” has been to create more clinics, abandoning full-service hospitals.
In addition, the United States has an insurance industry and a pharmaceutical industry which are both out of control, and clearly acting contrary to the “general Welfare.” Exorbitant price hikes for essential drugs, restrictions of supplies, outrageous premiums for insufficient coverage – all of these are daily practices that are deadly to huge swaths of Americans. Yet the Federal government has a Constitutional obligation to protect Americans from this predatory behavior; a Medicare-for-all policy in some form is a logical step toward fulfilling this obligation.
And how do we afford such measures? As readers of this blog know, Hamilton had an answer for that as well. He conceived a National Bank, whereby Federal credit would be put to work establishing a capital base for private capital (and states and localities) to invest in manufacturing, agriculture, commerce, and infrastructure. If these investments are devoted to improving technological progress and upgrading the workforce, they will result in an increase in productivity for the nation as a whole—and the ability to provide the services required.
Granted, Hamilton’s Bank of the United States was relatively limited, compared to the Second National Bank, Lincoln’s program of infrastructure-building, and FDR’s Reconstruction Finance Corporation. But he set out the principles that worked, and that we need today.
And that will include defeating this virus, and those that may well come in the years ahead.
 The Bank bill had passed both Houses of Congress in 1791, and Washington was considering whether to sign it into law. He solicited the opinions of Jefferson and Randolph, and then of Treasury Secretary Hamilton.