September 19, 2020–I am pleased to announce that on September 23, I will challenge the myths about Alexander Hamilton in a lecture sponsored by the Treasury Historical Association (THA). My talk, addressed to the Treasury group via internet platform, will be based on my 2019 book Hamilton Versus Wall Street: The Core Principles of the American System of Economics.
Yes, Hamilton Versus Wall Street!
By Nancy Spannaus
Despite the continuing wave of popularity around Alexander Hamilton, due heavily to the success of Lin-Manuel Miranda’s musical, the crucial importance of reviving his economic policies has not yet been widely understood. It is for this reason that I wrote the book Hamilton Versus Wall Street: The Core Principles of the American System of Economics back in 2019.
Contrary to the popular myth that he was in the pocket of wealthy financiers, Hamilton crafted an economic and financial system which had the purpose of building a prosperous nation for all, which could hold its own against the European imperial powers. The principles behind that system are most fully elaborated in his often-ignored Report on Manufactures, which I call the “Rosetta Stone” of his thinking. In that report, he describes why the nation must develop its manufacturing base, and offers a series of practical measures to be taken by the Federal government to do so.
Hamilton’s ideas were controversial from the start, opposed by both the slave-holding South (led by Thomas Jefferson), and parts of the mercantile North. But after the anti-Hamiltonian policies of the Jeffersonians led to the predictable disaster of the War of 1812, a growing section of the Democratic-Republicans, led by Mathew Carey, revived them. The banner of the American System was finally waved. A period of spectacular economic and infrastructure growth ensued, only to be stymied by President Andrew Jackson. Yet Hamiltonian measures surfaced again, stronger than ever, in the Lincoln Administration, whose measures resulted in catapulting the United States into becoming a world economic power.
But those policies were abandoned again, as the powerful financial elite around Wall Street gained political control. It took the 1929 financial crash and the Great Depression to bring a dramatic change under the administration of Franklin Roosevelt, who, despite his Jeffersonian rhetoric, pushed through Hamiltonian policies with a vengeance. It is the Wall Street backlash against those policies which has brought us to our current sorry state in manufactures, infrastructure, finance, and social health, as an increasing number of political voices are realizing.
In my book, I provide a detailed analysis of the Report on Manufactures; a review of the major periods of growth under American System economic policies; a report on how those policies directly contributed to the industrialization of Germany, Russia, and Japan; and a refutation of the myths that Hamilton’s ideas were copies of those of the British Empire. In this article, I will home in on the first and last points.
What Creates Wealth?
Hamilton’s Report on Manufactures is a tour de force of approximately 30,000 words, and it never received a vote in Congress, although some of the practical measures it proposed on tariffs were enacted piecemeal. Recently its promotion of government support for manufacturing and R&D has again been taken up, but to concentrate only on such measures would be to ignore some of the most important principles at stake.
The argument for manufactures begins with the question of what creates wealth. Is it controlling tangible assets, like gold, silver, or land? Is it dominating the terms of trade and accumulating riches in that way? Is it controlling the money supply?
Hamilton had already made it clear in his Report on a National Bank that the source of wealth was the physical production of the nation, the output of its industry, agriculture, and labor. Indeed, the purpose of his Bank, which was largely capitalized by government bonds, was to be a “nursery” for national wealth by providing credit for the growth of those activities. And while wealthy financiers were to be involved, the public interest had to dominate. As he put it in the Report on the National Bank:
Public utility is more truly the object of public Banks, than private profit. And it is the business of Government, to constitute them on such principles, that while the latter will result, to a significant degree, to afford competent motives to engage in them, the former be not made subservient to it.
But what permits that growth? Ultimately it is technological progress. And what allow technological progress is human invention, the power of the human mind to master the laws of nature, and utilize them to increase productivity. In refuting arguments against manufactures, Hamilton identifies precisely these elements, especially the mechanization of production and expansion of that mechanization. Mechanization allows us to reduce manual labor, pay higher wages, and ultimately cheapen prices. That process benefits the nation as a whole, both agriculture and industry. So, the Federal government, with its Constitutional commitment to the general welfare, must support this process with tariffs, bounties, premiums, and other such measures.
There are other requirements, of course. One is the development of infrastructure to improve circulation in the economy. Another is government support for the arts and sciences, and even some crucial industries (like the foundries). These are all cited in the Report on Manufactures. Hamilton was even one of the first to promote government healthcare for the nation’s sailors.
But all this depends upon expanding what Hamilton calls the “productive powers of labor,” with a view to prosperity for the nation as a whole.
My appreciation for the depth of Hamilton’s thought on economy came when reading the Report on Manufactures back in the 1970s. When detailing the advantages of manufacturing for society, Hamilton includes the following:
To cherish and stimulate the activity of the human mind, by multiplying the objects of enterprise, is not among the least considerable of the expedients, by which the wealth of a nation may be promoted.
That idea contrasted sharply with what I had understood to be American economic thinking. Yet that was a major aspect of the American System as taken up by Friedrich List, Mathew and Henry C. Carey, Abraham Lincoln, and FDR. I offer the following abbreviated summary from Henry Carey’s 1851 book Harmony of Interest:
Two systems are before the world…
One looks to increasing the necessity of commerce; the other to increasing the power to maintain it. One looks to underworking the Hindoo, and sinking the rest of the world to his level; the other to raising the standard of man throughout the world to our level. One looks to pauperism, ignorance, depopulation, and barbarism; the other to increasing wealth, comfort, intelligence, combination of action, and civilization.
One looks towards universal war; the other towards universal peace. One is the English system; the other we may be proud to call the American system, for it is the only one ever devised the tendency of which was that of ELEVATING while EQUALIZING the condition of man throughout the world.
Henry Carey, by the way, was the economics adviser for Abraham Lincoln.
The Enemy of British Economics
As you can see from the above quote, the proponents of the American System in the mid-19th Century had a clear understanding that the British system, including its free trade regime, was the enemy of the United States. But Alexander Hamilton, despite his years in the Revolutionary war, is still usually portrayed as a sympathizer, copycat, or even agent, of the British Empire.
In my refutation, I will concentrate on the economic policy argument.
The first example usually cited is the Hamilton’s Bank of the United States, which has been characterized as a British-modeled institution. I don’t deny there are technical similarities, but what’s crucial are the differences. As renowned Hamilton biographer Forrest McDonald pointed out, Hamilton’s bank was devised to fund economic growth, whereas the Bank of England was devised to fund the British Monarchy’s wish to go to war. The difference in purpose is stark.
The second example is Hamilton’s stance toward Adam Smith and his vaunted Wealth of Nations, published in 1776. Hamilton does use Smith’s arguments against the Physiocrats in the Report on Manufactures and shares some of his terms of economic analysis. But on the crucial issue of economic development, which requires supporting manufacturing, Hamilton directly opposed Smith and his supporters in the United States.
In the Wealth of Nations, Smith explicitly warns the United States not to embark on manufacturing, saying it would “violate the natural course of things” and “sacrifice the interests of the community to those of particular classes.” What is necessary, Smith says, is “free trade,” rather than government action to promote manufactures. Hamilton replies that following that “natural course of things”, which meant relying on British manufactured goods, would only keep the United States dependent upon Britain and lead to its “impoverishment.”
My final example will come closer to home, by dealing with Hamilton’s fight against speculators. Hamilton, like Washington, hated speculators and usurers, and the two of them used their powers of administration to try to keep them under control. This didn’t always work, of course, but it put them at loggerheads with the proponents of unregulated, speculative banking. And in the case I will describe below, Hamilton’s leading opponent was indeed a British agent, one Aaron Burr.
The Manhattan Company established by Burr
In 1798, New York City was undergoing another plague of yellow fever, and leading citizens came up with the idea of addressing the problem of a contaminated water supply as a possible source of the spread (it wasn’t, but they needed clean water anyway) by setting up the Manhattan Company to rebuild the system. Both Hamilton and Burr were involved in this effort, but from totally different standpoints. Hamilton threw himself into the project, coming up with detailed plans for new routes for the city water system. Burr, for his part, saw an opportunity to grab funds to promote his political prospects and enrich his friends: he inserted a small codicil to the request for a charter from the New York State Assembly saying that any “surplus funds” from the Company could be used to engage in financial operations.
What happened? Only a few months after the Manhattan Company was formed, Burr and his friends opened a bank of deposit—and plans for the new water system were abandoned! Hamilton denounced this effort as “a perfect monster of a bank.” The Manhattan bank survived, of course; today it remains on the scene as JPMorgan Chase. And would you be surprised to know that in its showcases are the pistols Aaron Burr used to kill Alexander Hamilton?
I am convinced that if Alexander Hamilton were alive today, he’d be the foremost opponent of Wall Street’s policies of speculation, deregulation, offshoring, and deindustrialization. If you read my book or hear my lecture September 23, perhaps you will agree.