The Future of American Political Economy
By Nancy Spannaus
July 26, 2021—More than 200 self-described conservatives, most of them of college student age, gathered at the Hilton Hotel in Old Town Alexandria, VA on July 23 to discuss “The Future of American Political Economy.” The two-day conference was sponsored by the Intercollegiate Studies Institute (ISI), a group founded by William F. Buckley in 1953 to counter what its founders viewed as the growth of socialism in the United States.
But there is far from unanimity among conservatives as to what approach they should be taking toward today’s economic, international, and social crises. Should it be the path of Donald Trump, or libertarians, or traditional Republicans? Or perhaps it should be something different altogether, like the principles of Alexander Hamilton?
I was drawn to this conference because it featured what looked to be a debate, right from the outset, on which direction American political economy should take. Specifically, the opening panel pitted Oren Cass, executive director of the avowedly pro-American System blog American Compass, against Jay W. Richards of the solidly free-market Heritage Foundation, and thus promised to be a most interesting, and perhaps fruitful, discussion. As an avid Hamiltonian, I wanted to be on the scene.
The report that follows will describe that opening panel, and the subsequent related one on “Cronyism and the Administrative State,” followed by my own reflections on the significance of this and other such events.
Setting the Stage
The opening remarks by John A Burtka IV, president of the ISI, described the history of ISI, in which he noted the tension between its ideals of tradition and dynamic innovation. What’s critical, he emphasized, was that conservatives find the right approach to respond to the major issues of our times. These he defined as: Big Tech’s suppression of freedom; the “China threat”; the erosion of the family; and the growth of cronyism and the administration state.
The first panel, he explained, would lay out the parameters in political economy for discussing these four issues, which were all to be explored in more detail in a series of panels over the two days. He – very appropriately, in my view – quoted from Alexander Hamilton’s Report on Manufactures:
Every nation … ought to endeavor to possess within itself all the essential of national supply. These comprise the means of Subsistence, habitation, clothing, and defence. [emphasis in original]
Burtka then introduced the two panelists and their topics. Oren Cass, who previously worked for the Manhattan Institute and Mitt Romney, was to speak on “The American System of Alexander Hamilton.” Jay Richards, a best-selling author (Money, Greed, and God: The Christian Case for Free Enterprise) and research professor at Catholic University, was scheduled to address the topic “Political Economy from Adams Smith to Thomas Sowell.”
The conference organizers had thoughtfully attempted to prepare the student audience for this debate by putting out as pre-conference readings, significant excerpts from Hamilton’s Report on Manufactures, and Smith’s Wealth of Nations. Those readings made clear the stark difference in approach on the questions of “free trade” and government’s role in fostering the development of certain industries.
Cass: Good political economy solves problems
Cass, who holds a degree in political economy from Williams College, began by seeking to describe just what political economy is. He concluded that, as a combination of economy and politics, it is the pragmatic art of understanding the forces which are creating the current world situation, and how to deal with them, while still advancing the nation’s ideals.
Thus, he said, we find that political economists constantly are coming up with different theories of how the economy works, depending upon the problems they are facing. Adam Smith faced the problems of trade and so evolved his theory of free trade. Karl Marx observed the way the working class was being abused and devised his supposed solution. (Cass provocatively noted the Marx was actually the best source on oppressive working conditions.) Joseph Schumpeter experienced the way in which technological advance was wiping out certain industries and jobs, and devised the theory of creative destruction.
None of these theories rose to the level of being true for all periods of history, however, because they were dealing with problems of particular eras. Cass cited as paradigmatic Friedrich von Hayek’s statement the exports and imports will always find a balance, made in his 1960 essay “Why I am Not a Conservative.” That statement may have described the situation at the time, but it is obviously not true in the current period.
Cass then turned to Hamilton, as the founder of the American economic tradition. How would you define that American System tradition? He (surprisingly to me) described it as “anything goes” which would solve the problems the nation faced, ranging from protecting private property, setting up the markets, to using government to foster and shield certain industries. Hamilton, you see, was seeking to solve the problem of his time, which was British control of world trade and economy. Thus, he necessarily came up against Smithian free trade, and devised plans to deal with it.
Cass was at pains to say that we do not have to follow Hamilton’s model today. We have a new set of problems before us: 1) China as both our major trading party, but also an economic threat; 2) Big Tech, which is the industry developing most rapidly technologically, but also is rapidly becoming a dangerous monopoly; 3) the collapse of family formation in a “brand new” way; and 4) a financial system which is producing growth that is dividing the nation regionally and through concentration of wealth. Wages are stagnant, and the situation is not improving.
Conservatives have not been able to productively address these problems since the end of World War II, he stated. Indeed, both the left and the right have taken too individualistic approaches, and are fighting out which should prevail. What has to be done is to go through the same exercises that Alexander Hamilton, Henry Clay, and Ronald Reagan did when they devised their approaches to dealing with the economic problems of their day. Call the theories into doubt. Work from principles, but throw out the playbooks from the past.
Richards: Judge from the Outcome
Richards began by asserting outright that, although he’s not a “classical liberal,” he is in the Smithian tradition. He agreed with Oren that there was no “Bible from the past” (Cass’s phrase) to define the proper economic theory but said he differed in the fact that he started from the existence of an economic reality. The problem is to be able to discern that reality, and make the right choices of buying and selling in the context of scarcity.
Smith, who was first and foremost a “moral philosopher,” represented a shift from normative moral philosophy, to the descriptive kind of economic analysis, in which he seeks to discover pattern of cause and effect, he said.
As an example, Richards posed a hypothetical, if admittedly extreme, problem for the audience. Say, you decided you wanted to raise the minimum wage to $100 an hour; how would you make the decision as to whether to go ahead. You would ask yourself three questions: 1) what happens as a result of your new policy; 2) why does that happen; and 3) what ought we to do?
This is the kind of analysis that a Smithian would do, he implied, and does in the Wealth of Nations. When he argues that people produce more good for society by pursuing their own selfish interests, than they do if they try to define and pursue the public good, Smith is simply stating an empirical fact. He is not saying selfishness is good, Richards insisted. (I respectfully disagree).
And the same with the “invisible hand,” which he said is only in the Wealth of Nations twice. That idea was intended to describe outcomes under certain conditions, and to highlight the disconnect between people’s intentions and the results.
Smith was confused about what created economic value, Richards asserted; he wrongly adopted the Marxian labor theory of value (a bit of a time inversion here) which states that the value of a commodity is based on how much labor goes into it. This idea didn’t get corrected until the early 20th Century, Richards argued, when Friedrich von Hayek got the “insight” that value is actually subjective, and defined by the operations of the marketplace.
Richards then turned to the work of Thomas Sowell, an American economist at the Hoover Institution whom he admires greatly. He stressed Sowell’s analysis of how well-intentioned social policies, such as rent control, (allegedly) lead to consequences that (allegedly) hurt those whom they are intended to help. The same kind of analysis should be made of industrial policy, Richards said.
We can’t reduce economics to ethics, he concluded. The art of economics is to look at the long-term effects of policies.
Beginnings of a debate
After a very brief general response by Cass and one question (about the moral character of the population), I happily got the opportunity to address the panelists and the audience. The gist of my remarks, before I was politely asked to get to the question, was to hone in on the actual conflict between Hamilton and Smith. Hamilton, as he outlined in his Report on Manufactures, was a visionary, devoted to making the U.S. an industrial nation. That document is the Rosetta Stone of his thinking, and he starts it right out with an attack on Adam Smith’s free trade!
Smith, on the other hand, was using his free trade doctrine to insist that the Americans not develop manufactures, because us doing so would challenge the power of Great Britain.
I was going to get into more of a definition of the American System, when I was asked to pose a question to the panelists, which I did: “Specifically, would you please engage in more of a debate?”
The good news is that my intervention worked. Over the course of the ensuing discussion, Cass got a lot more pointed in asserting the importance of support for domestic industry (which Hamilton insisted upon). One of the most interesting exchanges came when someone asked what they thought the government’s role should be in getting the “risk-adverse” private sector to invest in R&D. Richards answered first, asserting that the government should create conditions for such investment, but not pick industries; if it did, the people who would allegedly benefit would ultimately suffer.
Cass responded with a one-liner that stopped Richards in his tracks: Would you defund the National Institute of Health? While Richards hemmed and hawed – effectively conceding Cass’s point – Cass went on to emphasize how important government funding for R&D was, and how the current dismal lack of innovation and productivity in the U.S. economy can be traced to its abandonment.
There was much more to the discussion, which I don’t have the notes or the time to discuss here. If a video becomes available, it will be worth watching this discussion.
The Issue of Crony Capitalism
The second panel took up the issue of “Cronyism and the Administrative State.” Five panelists spent more than an hour in often-acrimonious debate: Richard M. Reinsch II of Liberty and Law both moderated and participated. The other panelists were Donald J. Devine of the Fund for American Studies; Josh Hammer of Newsweek and the Edmund Burke Foundation; Julius Krein of the journal American Affairs; and Julia Norgaard, assistant economics professor at Pepperdine University.
From the beginning, the discussion was a brawl, with Krein and Hammer on the one side, and Devine and Norgaard on the other. Both Krein and Hammer threw cold water on the demonization of the administrative state, saying the attack on it was pure ideology and not aimed at solving problems. Krein went so far as to say that “the whole idea of crony capitalism was to put a moral spin on problems created by conservatives, but none dare call it oligarchy.”
Hammer opined that the concept of crony capitalism was not really useful, and that the issue was whether the government was pursuing the goal of the common good, or not. There’s no room for “neutrality,” he said.
On the other side, Devine and Norgaard became more and more strident in insisting that the government stay out of the economy, and leave everything to the marketplace. Norgaard blasted Donald Trump as really a Democrat, insisted that government actions against COVID were just a means to control people’s lives, and that private enterprise can do virtually everything we need. All the government should do is protect private property! References by others as to the vital role government funding played in the major technological breakthroughs of the recent period didn’t faze her. Perhaps she is unaware that the great achievements of the private entrepreneurs now going into the space, of which she bragged a couple times, are based on the work of government-funded NASA.
A Few Observations
Since I was not able to stay after these two panels, I can’t comment on the rest of the conference. The highlights of the schedule were speakers J.D. Vance, author of the Hillbilly Elegy; Senator Marco Rubio of Florida; and Amity Shlaes, prominent critic of FDR’s New Deal in her book The Forgotten Man: A New History of the Great Depression. (For the full program, click here .)
It seems unlikely that the critique of recent conservative economic policy, as enunciated most clearly by Oren Cass in the question and answer period of his panel, would have been given much prominence. The temptation to fall back onto the “culture wars” on race, gender, and immigration, and a radical free-market attack on current government policy would be overwhelming. And the spokesmen for the outlook of the American Compass are few.
Yet, I can only commend the ISI for attempting to focus the conservative movement away from pure ideology, and onto real issues of political economy, at this critical juncture of history. As one attendee noted to me after the second panel, where is the broader discussion of basic issues about the role of government in the economy in the United States? Why is it not occurring among the broader citizenry of the country, rather than only in small conferences of students like this one?
The United States needs a debate on the American System in cities and towns across this large nation. Citizens have to grapple with the big ideas that our Founding Fathers and their American System successors did, to come up with the principled solutions we need. I’m hoping some of the attendees at this conference will get inspired to pursue political economy in depth. I can assure you that I will look for every opportunity to participate, by spreading the truth about the American System which we so desperately need to revive today.